Wealth tax

 ( Personal Taxes ) 

A small number of countries have been using wealth tax regimes for some time. Revenues earned from wealth tax schemes vary by country from 0.98% of GDP in Switzerland to 0.22% in France, for example.OECD (2020), "Revenue Statistics: Comparative tables", OECD Tax Statistics (database), (accessed on 17 February 2020). 2020 United States presidential candidate Elizabeth Warren claimed a wealth tax plan could generate 1.4% of GDP in revenue for the United States.

According to data from the OECD (OECD), the revenues generated from wealth taxes account for about 0.46% of all tax revenue on average in 2018 for countries which have wealth tax schemes in place. However this varies from country to country, the highest would be that of Luxembourg where it accounted for 7.18% of total tax revenue in 2018, the lowest would be Germany where it accounted for 0.03% of total tax revenue in 2018.

Estimates for a wealth tax's potential revenue in the United States vary. Several Democratic presidential candidates in the 2020 election have proposed wealth tax plans. Elizabeth Warren, for example, has proposed a wealth tax of 2% on net wealth above and 6% above . The conservative-leaning nonprofit Tax Foundation estimates revenue generated by Senator Warren's proposal would total around over the next 10 years. Separate estimates from campaign advisors and economists Emmanuel Saez and Gabriel Zucman put the revenue at about 1% of GDP per year, in alignment with USD revenue estimates. These estimates put Senator Warren's tax plan revenues at about in 2020. The sum of United States tax revenues in 2018 were in 2018, meaning the tax collected by this plan would be equal to 4% of current tax revenues. Additionally, the Tax Foundation estimates 2020 presidential candidate Senator Bernie Sanders' wealth tax plan would collect between 2020 and 2029.

Previous proposals for a wealth tax in the United States had already existed. Eileen Myles proposed a net assets tax in her presidential campaign in 1992, as did Donald Trump during his presidential campaign in 2000.

A net wealth tax may also be designed to be revenue-neutral if it is used to broaden the tax base, stabilize the economy, and reduce individual income and other taxes.

In their article, "Investment Effects of Wealth Taxes Under Uncertainty and Irreversibility", Rainer Niemann and Caren Sureth-Sloane found that the effects of wealth taxation on investment mainly depends upon the tax method employed and the broadness of the wealth threshold for taxation. Niemann and Sureth-Sloane found that, "Broadening the wealth tax base tends to accelerate investment during high interest rate periods." Caren Sureth and Ralf Maiterth concluded that wealth tax revenues from entrepreneurs may decrease in the long term and the revenue from a wealth tax may be negative if the wealth taxation thresholds are too low.

Saez and Zucman are two economists that worked on the "Ultra-Millionaire Tax" proposed by Senator Elizabeth Warren. In their paper, "Progressive Wealth Taxation", they assert that a potential wealth tax in the United States needs necessary parameters to limit detrimental effects on investment. One parameter is a high wealth threshold to limit direct taxation on small business and entrepreneurship. The academic literature on the effects of wealth taxation on investment incentives are inconclusive in the United States; Saez and Zucman assert there are three reasons wealth taxes in European countries are weak comparisons to the United States when analyzing potential effects on investment. First, they claim tax competition between European countries allows for individuals to avoid taxation by allocating assets to a different country. Reallocating assets to avoid taxation is more difficult in the United States because tax filings apply equally to United States citizens no matter the country of current residence. Second, low exemption thresholds caused liquidity problems for some individuals who were on the lower end of wealth taxation thresholds. Third, they contend European wealth taxes need modernization and improved methods for systematic information gathering.

Saez and Zucman have also argued that a wealth tax with a high threshold, would have the benefit of mainly targeting individuals who have a high degree of liquid assets, circumventing the liquidity problem of small and medium sized businesses and less wealthy individuals. Moreover, they argue that such a tax would not necessarily reduce innovation since innovation is mostly done by young people who have not acquired a big fortune yet. This must be seen in the context that most of the wealthiest people in the US are older than average. Additionally, they argue that large established businesses use some of their wealth to retain market power, reducing innovation and competition. Therefore, a wealth tax with a high tax payable threshold could potentially increase innovation.

Further proponents for a wealth tax claim it could have positive effects on investment in the United States. Some extremely wealthy people use their assets in unproductive ways. For example, an entrepreneur could generate much higher returns (though could conversely lose much more capital operating on leverage) than a wealthy individual with a conservative investment such as United States Treasury Bonds.

A wealth tax could lead to negative effects on investment, saving, and economic growth. In the article, "Economic effects of wealth taxation," Kyle Pomerleau states, "A wealth tax, even levied at an apparently low annual rate, places a significant burden on saving." The degree of this impact on savings and investments is reliant on the openness of the United States economy. A wealth tax would shrink national saving and increase foreign ownership of assets. The potential decrease in national savings leads to a decrease in capital stock. An estimate from the Penn Wharton Budget Model indicates that if the revenue from the wealth tax proposed by Elizabeth Warren were used to finance non-productive government spending, GDP would decrease by 2.1 percent by 2050, capital stock would decrease by 6.5 percent, and wages would decrease by 2.3 percent. Some opponents also point out that redistribution through a wealth tax is an inherently counterintuitive way to foster economic growth. Richard Epstein, a senior fellow at the Hoover Institution, contents, "The classical liberal approach wants to simplify taxation and reduce regulation to spur growth. Plain old growth is a much better social tonic that the toxic Warren Wealth Tax."

In fact the wealth tax named "Impôt sur les Grandes Fortunes" (IGF) "tax had been created in 1980, then suppressed in 1986 before finally being reintroduced in 1988 under the name "Impôt de Solidarité sur la Fortune" (ISF) "solidarity tax on wealth". In 1999 a new higher tax category was added which increased the money collected from 0.09% of GDP in 1990 to 0.16% in 2004.

For example, in 2003, 370 ISF's accountables people left France and it continued to grow year by year except between 2010 and 2011 when the tax threshold has been raised and accountable people were discarded from it. This capital flight only decrease after 2015 and in 2017 when the French government announced that it will suppress this tax. After the reforms implementation, there were only 163 departures of wealth tax people in 2018.COMITÉ D’ÉVALUATION DES RÉFORMES DE LA FISCALITÉ DU CAPITAL, "Premier rapport" /ref> The capital flight was one of the argument to reforms the wealth tax. After 2017, in the financial law of 2018, the new wealth tax was introduced with other tax reforms. The fiscal reform thus included a unique forfeit tax on saving, combined with the replacement of ISF by the IFI "Impôt sur la Fortune Immobilière" (IFI) which reduce the wealth tax to real-estate property only and finally a decrease of the corporate tax. This argument of capital flight takes its roots on an economic theory, the runoff theory. By decreasing the wealth tax, the wealth households are supposed to come back inside the country to invest and thus raised the GDP growth which will have effect on all the population by reducing unemployment and boost the economy. In France, the fiscal reform did not have the expected effects of runoff. In fact, the capital flight due to wealth tax household leaving only represented 0.3% and 0.5% of the total amount of money collected by the solidarity tax on wealth, between 2004 and 2015. On the other hand, this decrease of the wealth tax represented an income loss of 2.9 billion for the state.Vie publique, "Réformes de la fiscalité du capital : objectif atteint ?" /ref>

In term of investment, there were fewer investments in real-estate from people accountable of wealth tax. However, this movement could be explained more by the increase in household income, the low level of interest rates on mortgage loans and the general dynamics of the real estate market than by a sale, on the part of wealthy households, of property subject to the IFI for the benefit of investments in transferable securities, therefore the result in investment on corporate are not significant. Moreover, the fiscal reform on wealth tax had an insignificant level at the macroeconomic level for the corporate funds. For example, in 2020 for the non-financial society, the part of listed and non-listed share has been lower from the average of the previous period 2001-2019. It is also hard to measure the effect on corporate investment because of the Covid-19 crises which caused a shut-down of the economy in 2020.Comité d’évaluation des réformes de la fiscalité du capital, "Deuxième rapport", 10/2020, URL: 276598.pdf (vie-publique.fr)

Examples of such fraud and malfeasance were revealed in 2013, when French budget minister Jérôme Cahuzac was discovered shifting financial assets into Swiss bank accounts in order to avoid the wealth tax. After further investigation, a French finance ministry official said, "A number of government officials minimised their wealth, by negligence or with intent, but without exceeding 5–10 per cent of their real worth ... however, there are some who have deliberately tried to deceive the authorities." Yet again, in October 2014, France's Finance chairman and President of the National Assembly, Gilles Carrez, was found to have avoided paying the French wealth tax (ISF) for three years by applying a 30 percent tax allowance on one of his homes. However, he had previously converted the home into an SCI, a private, limited company to be used for rental purposes. The 30 percent allowance does not apply to SCI holdings. Once this was revealed, Carrez declared, "if the tax authorities think that I should pay the wealth tax, I won't argue." Carrez is one of more than 60 French parliamentarians battling with the tax offices over 'dodgy' asset declarations.

Moreover, this problem of wealth devaluation is undermined by the administration itself. For example, in France in 1999, the government introduced the notion of "the measured application of the tax law" /ref> But this application of the law is mostly reserved for the self-declared tax, like the wealth tax. It means that if there is a fraud in the declaration, there will be no sanction if the household concerned correct his mistake, even if it might have been done in purpose. This flexibility granted to self-declared taxes is indeed unequal. In fact the other tax that concerned most of the households, like income taxes, cannot be self-declared and this fraud flexibility benefits only to the richer household. More broadly, this self-declaration tax has developed what the sociologist Alexis Spire called "tax law domestication", which enables the richest part of the population to employ fiscal specialists to optimize its declarations and minimize the amount of the wealth tax. Once again this creates an opportunity of optimization, as the flexibility in sanctions is unequally distributed in the tax spectrum and thus in the different parts of the population.

Many analysts and scholars assert that since wealth taxes are a form of direct asset collection, as well as double-taxation, they are antithetical to personal freedom and individual liberty. They further contend that free nations should have no business helping themselves arbitrarily to the personal belongings of any group of its citizens. Umfairteilung, Economist, September 8, 2012 Further, these opponents may say wealth taxes place the authority of the government ahead of the rights of the individual, and ultimately undermine the concept of personal sovereignty. The Daily Telegraph editor Allister Heath critically described wealth taxes as Marxian in concept and ethically destructive to the values of democracies, "Taxing already acquired property drastically alters the relationship between citizen and state: we become leaseholders, rather than freeholders, with accumulated taxes over long periods of time eventually "returning" our wealth to the state. It breaches a key principle that has made this country great: the gradual expansion of property ownership and the democratisation of wealth."

In a 2011 study, the London School of Economics examined wealth taxes that were being considered by the Labour party in the United Kingdom between 1974 and 1976 but were ultimately abandoned. The findings of the study revealed that the British evaluated similar programs in other countries and determined that the Spanish wealth tax may have contributed to a banking crisis and the French wealth tax had been undergoing review by its government for being unpopular and overly complex. As efforts progressed, concerns were developing over the practicality and implementation of wealth taxes as well as worry that they would undermine confidence in the British economy. Eventually, plans were dropped. Former British Chancellor Denis Healey concluded that attempting to implement wealth taxes was a mistake, "We had committed ourselves to a Wealth Tax: but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle." The conclusion of the study stated that there were lingering questions, such as the impacts on personal saving and small business investment, consequences of capital flight, complexity of implementation, and ability to raise predicted revenues that must be adequately addressed before further consideration of wealth taxes. Why was a wealth tax for the UK abandoned?: Lessons for the policy process and tackling wealth inequality, London School of Economics, 2011

See also Pollock v. Farmers' Loan & Trust Co.; Sixteenth Amendment to the United States Constitution

In part because a wealth tax has never been implemented in the United States, there is no legal consensus about its constitutionality. As evidenced below, much scholarly debate on the topic hinges on whether or not such a tax is understood to be a "direct tax", per Article 1, Section 9 of the Constitution, which requires that the burden of "direct taxes" be apportioned across the states by their population.

Barry L. Isaacs interprets current case law in the United States to hold that a wealth tax is a direct tax under Article 1, Section 9.Isaacs, Barry L. (1977–78) "Do We Want a Wealth Tax in America?" 32 U. Miami L. Rev. 23See, for example, the United States Supreme Court case of Fernandez v. Wiener, in which the Court stated that a direct tax is a tax "which falls upon the owner merely because he is owner, regardless of his use or disposition of the property." Fernandez v. Wiener, 326 U.S. 340, 66 S. Ct. 178, 45–2 U.S. Tax Cas. (CCH) ¶10,239 (1945). Given the extreme difficulty of apportioning a wealth tax by state population, the implementation of a wealth tax in the United States would require either a constitutional amendment or the overturning of current case law.Jensen, Erik M. (2004) "Interpreting the Sixteenth Amendment (By Way of the Direct-Tax Clauses)" 21 Const. Comment. 355 Unlike federal wealth taxes, states and localities are not bound by Article 1, Section 9, which is why they are able to levy taxes on real estate.

Other legal scholars have argued that a wealth tax does not represent a direct tax and that such a tax could be implemented in the United States without a constitutional amendment. In a lengthy essay from 2018, authors in the Indiana Journal of Law argued that "... the belief that the U.S. Constitution effectively makes a national wealth tax impossible ... is wrong." The authors noted that in the 1796 Supreme Court decision for Hylton v. United States, Supreme Court justices who had personally taken part in the creation of the U.S. Constitution "unanimously rejected a challenge to the constitutionality of an annual tax on carriages, a tax akin to a national wealth tax in that it taxed a luxury property." However, Alexander Hamilton, who supported the carriage tax, told the Supreme Court that it was constitutional because it was an "excise tax", not a direct tax. Hamilton's brief defines direct taxes as "Capitation or poll taxes, taxes on lands and buildings, general assessments, whether on the whole property of individuals or on their whole real or personal estate" which would include the wealth tax. Tax scholars have repeatedly noted that the critical difference between income taxes and wealth taxes, the realization requirement, is a matter of administrative convenience, not a constitutional requirement.

To prevent capital flight, proponents of wealth taxes have argued for the implementation of a one-time exit tax on high net worth individuals who renounce their citizenship and leave the country. An additional constitutional objection to such a tax could be raised on the grounds that it violates the takings clause of the Fifth Amendment, which prohibits the federal government from taking private property for public use without just compensation.

In 2023, Texas voters approved a constitutional amendment prohibiting state lawmakers from imposing a wealth tax.

Fiona Harvey (2023-06-19). "A wealth tax could help poorer countries tackle climate crisis, economists say". The Guardian /ref>

Additionally, a recent global survey conducted by Fabre et al. (2025), involving 40,680 respondents across 20 countries, examined public support for various climate policies. Among the most supported measures was a proposal for a “global tax on millionaires to finance low-income countries”, which received between 72% and 98% relative support depending on the country (where relative support refers to the share of ‘Somewhat support’ or ‘Strongly support’ among non-indifferent answers).Fabre, A., Douenne, T. & Mattauch, L. Majority support for global redistributive and climate policies. Nat Hum Behav /ref>

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See also

• Ad valorem tax
• Capital in the Twenty-First Century
• Capital levy (a one-off wealth tax)
• Economic inequality#Environment; addressing human overpopulation having similar effects to decrease wealth gap
• Endowment tax
• Global minimum tax on billionaires
• Inheritance tax
• Land value tax
• Panama Papers
• Paradise Papers
• Progressive tax
• Property tax
• Redistribution of income and wealth
• Tax exporting
• Wealth concentration
• Wealth inequality in the United States
• Welfare state
• World taxation system
• Zakat

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Further reading

• Alexandra Thornton and Galen Hendricks, Ending Special Tax Treatment for the Very Wealthy, Center for American Progress, 4 June 2019. Ending Special Tax Treatment for the Very Wealthy The report summarizes the problem (gross inequality) and its cause ("special tax treatment for the extremely"), and specific "ways to rebalance the tax code and put the economy on a better track."
• Scheuer, Florian; Slemrod, Joel (August 2, 2020). " Taxation and the Superrich". Annual Review of Economics. 12 (1): 189–211.
• Scheuer, Florian; Slemrod, Joel. 2021. " Taxing Our Wealth." Journal of Economic Perspectives.

Categories: Personal Taxes, Taxation And Redistribution, Tax