- Several Democrats just proposed a wealth tax that would apply to 0.05% of American households.
- An analysis finds billionaires would have paid $114 billion in 2020 if the plan was in effect.
- A wealth tax has been a popular proposal for addressing inequality but would face implementation issues.
- Visit the Business section of Insider for more stories.
The newly proposed Ultra-Millionaire Tax Act would have raised $114 billion from American billionaires in 2020 if it had been in effect.
This projection comes from an analysis from Americans for Tax Fairness (ATF) and the Institute for Policy Studies (IPS). Looking at Forbes billionaire data, the analysis found that the wealth tax would raise $1.4 trillion over 10 years – and that billionaire wealth still would increase under the proposal.
“If the past continues, billionaire wealth has grown much faster than the economy and wages overall, and that’s been true for 40 years,” Chuck Collins, the director of the program on inequality and the common good at IPS, told Insider. “In 1983, there were 18 billionaires.”
Sen. Elizabeth Warren, along with Reps. Pramila Jayapal and Brendan Boyle, introduced the act on Monday. Households with a net worth between $50 million and $1 billion would see a 2% tax, and those with a net worth over $1 billion would be taxed 3%. According to a press release, the tax would only apply to 0.05% of American households.
A wealth tax was a key plank of Warren’s 2020 presidential platform. Critics voiced concern at the time over not just the constitutionality of such a tax, but whether it could even be effectively implemented. The latter concerns remain – in President Joe Biden’s administration, no less. Treasury Secretary Janet Yellen said last week it would be difficult to implement and that President Biden doesn’t favor it.
But the bill by progressive Democrats represents another attempt to address increasing inequality. In a press release for the bill, Representative Brendan Boyle said “the hyper concentration of wealth among a tiny number of multimillionaires and billionaires is a crisis for American capitalism and the American Dream.”
Boyle added: “It is time for the ultra-millionaires to pay their fair share so that critical government programs can be bolstered to help the everyday American. Our proposal will make a meaningful difference in the lives of Americans who need the most help and bolster our country’s shrinking middle class.”
Concerns over constitutionality and implementation
Warren’s proposal also contains two letters from law professors on the constitutionality of such a tax, specifically addressing which clause from Article I would be applied.
Former Justice Dept. tax attorney James Mann previously told Insider’s Taylor Nicole Rogers that the constitutionality of the tax would probably end up debated in front of the Supreme Court.
Regarding implementation, Stephen Henley, senior managing director and national tax practice leader at CBIZ MHM, previously told Insider that such a wealth tax would require those wealthy individuals to value their net assets every year. “You can imagine having to go out and get values of all those assets every year would be an administrative nightmare,” he said.
In particular, people could come up with ways to devalue their assets, or hire appraisers that use methodologies that could benefit them. And the IRS may not have the manpower or bandwidth for the auditors who would audit those forms.
Collins said there would be “real” potential implementation difficulties, and “startup issues” with both the enforcement and creation of a “new tax regime … But then once it’s in place, I think it’s not that hard to update it on an annual basis.”
The bill also contains several anti-evasion measures, including a $100 billion investment in the IRS and a 30% minimum audit rate for those impacted by the tax.
Millionaire Liesel Pritzker Simmons – who would see higher taxes under Warren’s plan – has been a long time wealth tax advocate. Pritzker Simmons is an heiress of the Hyatt hotel empire fortune. She’s also the cofounder of and principal at Blue Haven Initiative, which invests in impact-driven groups and companies.
Regarding the concerns over implementation and enforcement, she told Insider, “I think every person that would be affected by this tax knows exactly how much money they have and exactly where it’s located.”
Inequality has been growing during the pandemic, and a wealth tax could be a fix
Throughout the pandemic, American billionaires have seen major gains, adding $1.3 trillion to their collective net worths.
Overall, American billionaires are now worth $4.3 billion; the bottom half of the population holds just about $2.4 trillion in wealth. Globally, an Oxfam report found billionaires increased their wealth by $3.9 trillion from March 18, 2020, to December 30, 2020.
That report also found that, while billionaires recouped all of their losses by November, recovery for the bottom could take up to a decade – and that a wealth tax was one step “towards a better world.” Warren herself has previously argued that a wealth tax is one way to invest and build in the future of the country and economy.
A wealth tax has also seen popular support: An Insider poll from February 2019 found that 54% of Americans supported Warren’s proposal.
“Inequality is ballooning – I mean, the pandemic has laid this bare – but it didn’t just start with a pandemic. This has been going on for years. For me, why I really support a wealth tax is that I think it’s going to be good for the economy,” Pritzker Simmons said. “We can see that trickle-down economics doesn’t work. We’ve seen this play out over the last 40 years.”
She added: “I think that a policy fix is in order.”