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1 1 (April 1, 2022)

handle is hein.crs/govegcl0001 and id is 1 raw text is: A Congressional Research Service nforming 1h legislive debat s ince 1914 An Economic Perspective on Wealth Taxes The idea of imposing a tax on individual wealth has appeared in policy debates with increasing frequency. Proponents of a wealth tax have primarily argued that such a tax would achieve three objectives. First, a wealth tax would mitigate rising wealth inequality. Second, the tax would raise significant revenue that could be used to address debt and deficit concerns, and fund a variety of social policies. Finally, the tax would capture some income sources that currently are not taxed (e.g., unrealized capital gains or types of imputed income). This In Focus presents an economic perspective on wealth taxes. Because no federal wealth tax currently exists, the discussion in this In Focus is primarily in terms of a general wealth tax. Designing such a tax would require careful consideration about a number of specific issues. Where appropriate, the discussion highlights specific points of consideration. At its most basic level, wealth is the value of all assets (e.g., stocks, bonds, real estate, art) owned by an individual minus the value of their liabilities. As shown in Figure 1, the concentration of wealth in the top 10% (i.e., top 1% plus next 9%) of the wealth distribution in the United States has increased over the past 30 years. The increase has been largest for the wealthiest households. The share owned by the top 1% rose by the greatest amount, from 23.4% in the third quarter of 1989 to 31.4% in the fourth quarter of 2020. Over the same time period, the holdings of the top 1% of the wealth distribution have shifted toward stocks and business holdings. Figure I. Share of Total Wealth by Wealth Percentile Group in the United States, 1989 to 2020 Source: Board of Governors of the Federal Reserve System. Note: Quarterly data from Q3 1989 to Q4 2020. Updated April 1, 2022 Selected Policy Considerations Enactment of a wealth tax would represent a significant change in U.S. tax policy. The change would raise a number of policy issues and questions that Congress may choose to consider. Revenue Yield The Joint Committee on Taxation (JCT) would provide Congress with an official revenue estimate of any wealth tax proposal. A number of outside think-tank and academic researchers have proposed revenue estimates of wealth taxes, which vary depending on the assumed design of the tax. For example, the Tax Policy Center (TPC) examined three stylized wealth taxes: 1. a tax equal to 1% of net wealth over $20 million ($40 million for joint filers); 2. a tax equal to 1% of net wealth between $20 million and $100 million ($40 million and $200 million for joint filers) and 2% of net wealth over $100 million; and 3. a tax equal to 1% of net wealth between $100 million and $1 billion and 2% of net wealth over $1 billion. The TPC estimates these three versions would raise $1.1 trillion, $1.6 trillion, and $800 billion in revenues, respectively, in the first 10 years, though they emphasize the revenue estimates are highly uncertain. The uncertainty surrounding wealth tax revenue estimates is illustrated by the broad range of estimates of a legislative proposal by Senator Warren (S. 510). The proposal would levy a 2% tax on net wealth above $50 million plus a 1% surtax on wealth over $1 billion. Annual estimates for this proposal range from $117 billion (Smith, Zidar, and Zwick) to $300 billion (Saez and Zucman). The $300 billion figure is an increase from an earlier $275 billion estimate. Saez and Zucman partly attribute the revised estimate to an increase in the concentration of wealth. Authors of these estimates have noted the difficulty in determining the magnitude of behavioral responses and avoidance behavior that would occur if the proposal were enacted. Valuation Determining the value of assets is a crucial aspect of implementing a wealth tax. Valuations of bank accounts and assets that are readily traded on financial markets, such as stocks and bonds, would be relatively straightforward, although when such valuations were made would be important given fluctuations in asset values over time.

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