The blog of the Urban Institute
October 10, 2019

Three Questions for Implementing a Wealth Tax in America

October 10, 2019

Elizabeth Warren and Bernie Sanders have proposed taxing wealth held by very rich Americans. They claim the taxes would generate an estimated $2.75 trillion or $4.35 trillion in revenue over a 10-year period, respectively. Candidates Julian Castro, Tom Steyer, and Beto O’Rourke also support a wealth tax in some form.

Proponents of a wealth tax argue that it would support fiscal fairness and reverse worsening economic inequality.

“The wealth of the top one percent has continued to increase,” said Ian Simmons, a member of the group Patriotic Millionaires, who believes wealthy Americans should pay more in taxes. “Those of us who can afford it should contribute more to the financial success for our country's future.”

Simmons spoke at a recent discussion on taxing wealth hosted by the Urban-Brookings Tax Policy Center (TPC). A wealth tax raises many questions. Is it constitutional? Would it work as proponents hope? At the TPC event, the experts’ conversation focused on challenges facing a wealth tax’s implementation:

1. How would wealth be measured?

TPC senior fellow Janet Holtzblatt explained how implementing a wealth tax would have challenges because of hard-to-value assets that are “not rated often, such as privately-owned businesses.” Hard-to-value assets can also include intellectual property, artwork, and jewelry.   

Even with assets like stocks and bonds, Holtzblatt suggests it still may be difficult to accurately measure true value.  

“Net wealth should be measured at market value, but market value is more difficult to assess when the asset is not traded on the market,” she said. And difficulties can arise when trying to assess the value of assets regularly traded on markets.

“Stocks and bonds are traded every day on the market, but their value changes from day to day," said Holtzblatt. "Do you value it on the day when there’s a boom in the stock market or do you value it on the day it crashes? Or do you come up with some average over the course of the year?”

2. How much revenue would a wealth tax raise?

Revenue estimates of wealth tax proposals have varied. TPC senior fellow Howard Gleckman wrote following the event, “[the wealth tax] would raise a substantial amount of money, but less, likely, than its proponents believe.”

“The amount of tax revenue a wealth tax generates would depend on how it is designed, what rates are imposed, and, crucially, on how the mega-rich respond to the new tax. Right now, we can only guess, but revenue assumptions are highly sensitive to those behavioral responses,” said Gleckman.

Holtzblatt also believes revenue estimates may not reach advocates’ heightened expectations.

She explained how the disagreement on the revenue potential for a wealth tax centers around three questions: How much wealth is there in the United States? How is wealth distributed among households? Can a wealth tax be avoided or evaded?

3. How would America spend new funds?

Simmons believes that if revenue from a wealth tax is “invested broadly across the country, it would strengthen prosperity and generate stronger economic growth.”

Despite revenue discrepancies, proponents of a wealth tax have pointed to far-ranging initiatives that new revenue could pay for.  Revenue raised under Sanders’s plan, for instance, would finance affordable housing, universal childcare, and Medicare for All. And, of course, future revenue will be needed to address chronic budget deficits.

Simmons thinks revenue could be used to boost public health. “The wealth tax can make Americans healthier. There are many smart public investments that American public health officials have called for, like investing in cardiovascular disease solutions.”

He added, “We want to ensure that proceeds from the wealth tax are used to solve problems that really tangibly and dramatically improve people's lives and expand opportunities for present and future generations.”

Advocates for a wealth tax have many motivations. This discussion helped surface several of them, while raising important questions about how a wealth tax might be implemented and its administrative challenges.

Senators Elizabeth Warren and Bernie Sanders. (Photo by Win McNamee/Getty Images).

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As an organization, the Urban Institute does not take positions on issues. Experts are independent and empowered to share their evidence-based views and recommendations shaped by research.