On Monday, three lawmakers – Sen. Elizabeth Warren (D., Mass.), Rep. Pramila Jayapal (D., Wash.), and Rep. Brendan Boyle (D., Pa.) – introduced a bill to impose an annual Ultra-Millionaire Tax on the richest Americans.
Warren pitched the idea for a wealth tax when she ran for president, And one frequent criticism of such a plan was how hard it would be to enforce, primarily because assets like privately owned businesses, real estate that’s not for sale, and art – unlike stocks – are difficult to value.
That’s a solvable problem, argued Jayapal told Yahoo Finance Live.
The proposal is focused on “a structural problem with our tax code for a long time,” she said, noting that “we really don't tax the rest of wealth until you die.”
Jayapal said the way we tax estates currently shows a wealth tax is possible. “It actually is something we are already doing,” she said. “When people die, we value their net worth and their estates – we just do it at death.”
The proposal would impose an annual tax of 2% on the net worth of households and trusts between $50 million and $1 billion. For those with a net worth above $1 billion, the annual tax rate would jump to 3%. To tout the proposal, the lawmakers released an analysis by the University of California, Berkeley that found the tax – which would impact just 100,000 American families or 0.05% of the population – is estimated to generate $3 trillion in tax revenue over the next 10 years.
‘It's very difficult’
Not everyone is so sure the estate tax is a good model to follow.
Erica York, an economist with the Tax Foundation, recently noted to Yahoo Money that “currently, the IRS has to process about 4,000 estate tax returns a year and it's very difficult.”
The problem is that “some of these assets aren't aren't traded publicly, so there's not a straightforward way to see how much they're worth like there is with a stock.” She noted that assets like artwork are already difficult to assess upon death.
One of Jayapal’s Democratic colleagues, Rep. Don Beyer of Virginia, was raised concerns about people hiding from a wealth tax as well as the question of whether the proposal is constitutional.
“I'm trying to take my lead from President Biden,” he said, noting that the president has “been looking at corporate tax rates, buybacks, things like that, rather than wealth tax.”
In announcing the tax, Warren noted that richest Americans often pay a lower effective tax rate than less well-off Americans. “A wealth tax is popular among voters on both sides for good reason: because they understand the system is rigged to benefit the wealthy and large corporations," said Warren.
Her proposal includes $100 billion to go to the IRS to "hire and train additional personnel, modernize IT systems, and implement the new asset valuation, reporting, and enforcement requirements." It also includes a 40% “exit tax” that would be levied on those with a net worth above $50 million who try to renounce their U.S. citizenship in order to avoid the tax.
“If you suddenly decide you don't want to be in the United States, that's OK, but you've got to pay 40% as an exit tax,” Jayapal said.
As she has done before, Jayapal brought up Amazon founder Jeff Bezos (Amazon is based in her Seattle district) in the context of billionaires not paying their fair share. “I'm not picking on him,” she said, but his current base salary of just $81,000 means that he is taxed “in the same way on that income” as a nurse who earns a similar salary.
Under this wealth tax Bezos would pay billions each year given his net worth of over $180 billion.
“We know that Jeff Bezos is the richest man in the world and has enormous wealth, but he's not paying any taxes on that until he passes away for the most part,” said Jayapal. (Bezos would pay taxes on the massive capital gains from his Amazon shares if he sells the shares or looks to transfer them to heirs. Until then, those assets are not taxable.)
‘We learned from those countries and those experiences’
A wealth tax has never been tried in the United States but many progressive Democrats have been pushing for one for years.
Versions of a wealth tax have been tried in other countries. Of the 37 leading countries tracked by the Organisation for Economic Co-operation and Development, 5 currently have some version of a wealth tax – down from a peak of 12 countries in the 1990s.
New York University professor Edward Wolff recently analyzed wealth taxes in the U.S. and around the world and laid out many of the problems other countries have had implementing them successfully.
Jayapal noted that she and her colleagues “learned from those countries and those experiences” in building their proposal. She specifically highlighted enforcement as key, saying “we've seen that in countries that have implemented this, if you don't invest the dollars into your enforcement arm and into your implementing arm, that does end up being a problem.”
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC. Denitsa Tsekova contributed reporting.