WHY THIS MATTERS

The concentration of wealth among the top 1 percent of families has led some lawmakers, academics, and others to propose a net wealth tax. Supporters find wealth taxes appealing because they can be designed to affect a relatively small share of the population and still raise substantial revenues. The impact of a wealth tax on revenues and taxpayers, though, can vary greatly depending on the choice of base, rates, and tax thresholds.

Although President Donald Trump’s administration has signaled their support for reducing taxes on high-income families, interest in a wealth tax has not subsided. Several states, for example, have considered wealth tax legislation, and a proposal by economist Gabriel Zucman to impose a global wealth tax has received recent attention. Wealth taxes, however, are difficult to administer, and many taxpayers in other countries have adopted legal and illegal strategies to minimize their payments.

This report examines the issues and challenges of adopting a wealth tax in the United States and contains an analysis of the revenue and distributional effects of six hypothetical options, which vary on several dimensions—the type of assets subject to the tax, the tax rate, and the tax threshold.

WHAT WE FOUND

Three options involve a broad-based wealth tax—in which all assets would be taxed—that varies based on tax rates and thresholds. Under the first two options, about 85 percent of the tax would be borne by families in the top 1 percent of the income distribution. We estimate the following:

• A 1 percent tax rate on net wealth above $50 million ($25 million for unmarried filers) would raise $1.9 trillion between 2025 and 2034 and reduce after-tax income by 1 percent overall and by 8 percent for families in the top 1 percent of the income distribution.
• The addition of a second tax rate bracket—with wealth above $100 million taxed at a 2 percent rate—would increase the revenue savings to $2.9 trillion between 2025 and 2034 and reduce after-tax income by 2 percent overall and by 14 percent for families in the top 1 percent of the income distribution.
• A flat 1 percent rate beginning at $30 million for married couples and $15 million for unmarried individuals would raise $2.8 trillion between 2025 and 2034 and reduce after-tax income by 2 percent overall and by 10 percent for families in the top 1 percent of the income distribution.

Countries with wealth taxes have often treated certain assets more favorably than others. Following their lead, we also estimated three options that excluded pensions, housing values below $1 million, and privately held businesses in which the owner was actively involved in the operations of the companies. About 90 percent of the tax would be borne by families in the top 1 percent under the first two options. We estimate the following:

• A 1 percent tax rate on net wealth above $50 million ($25 million for unmarried filers) would raise $1.0 trillion between 2025 and 2034 and reduce after-tax income by 0.6 percent overall and by 4 percent for families in the top 1 percent of the income distribution.
• The addition of a second-tax rate bracket—with wealth above $100 million taxed at a 2 percent rate—would increase the revenue savings to $1.6 trillion between 2025 and 2034 and reduce after-tax income by 1 percent overall and by 7 percent for families in the top 1 percent of the income distribution.
• A flat 1 percent rate beginning at $30 million for married couples and $15 million for unmarried individuals would raise $1.5 trillion between 2025 and 2034 and reduce after-tax income by 1 percent overall and by 5 percent for families in the top 1 percent of the income distribution.

HOW WE DID IT

For this analysis, we used TPC’S large-scale microsimulation model. TPC regularly produces revenue estimates and analysis of the distributional effects of various tax provisions under current law and potential changes to the tax code using that microsimulation model. Assumptions regarding taxpayers’ reactions to wealth taxes are based on a review of studies of wealth taxes in other countries.

A common finding in those studies is that many wealthy individuals adopt aggressive strategies to reduce their wealth tax payments. Our estimates of the revenue gains from a wealth tax assume that US taxpayers would also adopt legal (avoidance) or illegal (evasion) strategies to reduce their reported net wealth and thus the amount of tax payments.

The estimates, however, do not account for changes in investment in response to a wealth tax, nor have we estimated the costs to taxpayers for complying with the law, to third parties for reporting independent information on taxpayers’ holdings, and to the government for administering a complicated tax.

Those factors—along with the possibility that the Supreme Court would rule a wealth tax unconstitutional—may ultimately stymy efforts to enact a federal wealth tax.