June 27, 2019
Federal Policy Director
June 27, 2019
For years, many lawmakers have been reluctant to embrace tax increases either out of ideological opposition or because they believed it would cost them votes or campaign contributions. But what happens when a tax increase is supported by a large majority of the public and by some of the people who would pay it? Shouldn’t that consensus be enough to overcome any opposition? The growing push for federal wealth tax may provide a test case to answer that question.
In January, ITEP released a report explaining how Congress could structure a federal tax on household net worth in excess $32 million—effectively targeting the wealthiest 0.1 percent of households. Sen. Elizabeth Warren proposed a similar wealth tax shortly thereafter on household net worth in excess of $50 million.
A February survey conducted shortly after (on page 305 if you’re curious) found that 61 percent of registered voters supported Warren’s proposal, including 51 percent of Republican voters. And it’s not just the non-rich wanting to tax the very rich. A June survey found that 60 percent of millionaires support the idea.
This week, several prominent people with very high net worth publicly called for a wealth tax. In a letter to presidential candidates, 18 members of America’s top 0.1 percent explain the reasons they support a federal wealth tax. An op-ed by Eli Broad, founder of two Fortune 500 companies, admitted that his philanthropy is simply no substitute for taxing the wealth of those at the top. He believes a wealth tax would, “address the economic inequality eroding the soul of our country’s strength.”
As ITEP analyses and research have previously explained, wealth inequality is even more severe than income inequality. To aggressively curb record levels of inequality, the nation needs a wealth tax to supplement the income tax. More importantly, the income tax as it is structured today does not really address how the rich get richer. Much of the income enjoyed by the very rich is “unrealized” gains, the appreciation of unsold assets, which is not touched at all by the income tax.
If you define income the way an economist would define it, you would see any increase in a person’s net worth as income. But our income tax does not always recognize that as income. One solution is to modify the income tax so that it applies to unrealized capital gains. The ranking Democrat on the Senate Finance Committee, Sen. Ron Wyden, is working on a proposal for “mark-to-market” taxation, which would use this approach to tax the very rich. A federal wealth tax offers another way to deal with this problem.
While the details seem are arcane, most people probably get the gist in an intuitive way. We all understand that wealthy people have assets that keep growing and keep making them wealthier—the Picasso or corporate stock they inherited that becomes more valuable over time. By contrast, middle-class households’ most valuable asset is often their home, which is subject to an annual tax (a property tax). It’s no wonder that a proposal to treat the assets of the very wealthy more similarly to how we treat the assets of the middle-class seems like a no-brainer to most Americans.