Recent years have been filled with debates on various tax issues and reforms such as the Tax Cuts and Job Acts of 2017 that has impacted individual taxpayers. One of the more current issues debated is the wealth tax also known as capital tax or equity tax. A wealth tax is a tax imposed on an individual’s net worth, which is their assets minus liabilities. These assets are not limited to cash and can include bank deposits, shares, fixed assets and so on.
This is not a novel idea nor has it not been tried before in other countries such as France. However, it has garnered a lot of attention in the past year with it being proposed by 2020 Presidential candidates such as Senator Elizabeth Warren and Bernie Sanders. This article will focus on Senator Warren’s and Sander’s proposal, the benefits and drawbacks and feasibility of a wealth tax.
Senator Warren’s proposal stands out the most among other wealth tax proposals because as stated by the New Yorker “[she] is the first viable contender for the Presidency in decades to have proposed a direct tax on wealth” (Cassidy). Senator Warren’s wealth tax would levy two-per-cent on those with fortunes greater than fifty million dollars and tax three cents per dollar for those with more than a billion dollars. At face value, this does not seem like it would generate enough revenue for the federal government to use to improve society ranging from childcare to wages paid.
However, as stated by the New Yorker “a two-per-cent wealth tax for an individual worth a billion dollars raises twenty million dollars” (Cassidy). According to Senator Warren’s campaign, the estimated revenue over ten years would be $2.75 trillion. As stated by Senator Warren at the Democratic convention in New Hampshire earlier this month, the proposed wealth tax could provide benefits such as “childcare for every baby…age zero to five”, “universal pre-K for every three year old and four year old” and “raise the wages of every child-care worker and preschool teacher” in the United States (Rubin). Another candidate that has also gained increasing attention is Senator Sanders and his recent proposal of a tougher wealth tax on America’s ultra-wealthiest. The main difference from Senator Warren is that he would “cut the wealth of billionaires in half over 15 years, and raise an estimated $4.35 trillion over 10 years” (Pramuk). Senator Sanders would use the collected funds to reduce income inequality and invest in working people by offering better healthcare and universal childcare.
Despite the tremendous amount of hypothetical benefits that seem to come with both Senator Warren’s or Senator Sanders’s wealth tax, many people point out that there are downsides to this as well. According to The Role and Design of Net Wealth Taxes in the OECD written by the Organisation for Economic Co-operation and Development (OECD), an intergovernmental economic organization comprised of 36 member countries, a wealth tax may not be effective as it does not stop people from avoiding and evading tax such as using off-shore accounts and loopholes in tax policies.
Furthermore, the study states that it may negatively influence business creation and innovation by decreasing people’s willingness to take risks. Moreover, it explains how other problems such as the costs associated with enforcing a wealth tax, and the possibility of wealthy taxpayers relocating may arise. Besides the downsides of a wealth tax, there are also issues with the feasibility of implementing such laws. Some argue that a wealth tax is unconstitutional because for it to be constitutional the wealth tax, which is a form of direct tax, must be apportioned to population.
Senator Warren’s and Sanders’s wealth tax proposals are not income taxes and are not apportioned direct tax. Thus, both may be considered to violate the 16th Amendment and Article I, Section 9, Clause 4.
The idea of a wealth tax and its benefits are alluring to many low and middle-class citizens as seen through the increasing attention on a possible wealth tax and its constant mention by Presidential candidates. However, before agreeing on a wealth tax people must weigh and consider the feasibility, legality, and fallbacks of adopting a wealth tax. Only time will tell whether a wealth tax will become a reality or remain an idea.
- Cassidy, John. “The Growing Debate Over Elizabeth Warren’s Wealth Tax.” The New Yorker. The New Yorker, September 12, 2019. https://www.newyorker.com/news/our-columnists/the-growing-debate-overelizabeth-warrens-wealth-tax.
- OECD (2018), The Role and Design of Net Wealth Taxes in the OECD, OECD Tax Policy Studies, No. 26, OECD Publishing, Paris, https://doi.org/10.1787/9789264290303-en.
- Pramuk, Jacob. “‘Billionaires Should Not Exist’: Bernie Sanders Tries to Outdo Elizabeth Warren with Tougher
Wealth Tax Proposal.” CNBC. CNBC, September 24, 2019. https://www.cnbc.com/2019/09/24/berniesanders-proposes-wealth-tax-after-plan-from-elizabethwarren.html.
- Rubin, Jennifer. “In New Hampshire, Elizabeth Warren Shows Why She’s on the Rise.” The Washington Post. WP
Company, September 8, 2019. https://www.washingtonpost.com/opinions/2019/09/08/new-hampshires-democraticconvention-explains-lot/.
Juan Lee/Tax Advisors for
Champaign Society (TACS)