- Treasury Secretary Janet Yellen said she’s not planning a wealth tax like Elizabeth Warren’s.
- Yellen told The New York Times that such a tax would have “very difficult implementation problems.”
- But she is looking into other tax routes, including capital gains and the corporate tax.
- Visit the Business section of Insider for more stories.
Treasury Secretary Janet Yellen has indicated that a wealth tax is off the table, but she is looking at other potentially significant measures.
In an interview with The New York Times’ Andrew Ross Sorkin, Yellen said she wasn’t planning a wealth tax like Sen. Elizabeth Warren’s proposal because it’s “something that has very difficult implementation problems.”
Yellen also said during a virtual conference held by the Times that “a wealth tax has been discussed,” but it’s not favored by President Biden.
One major plank of Sen. Warren’s presidential run – and, later, Sen. Bernie Sanders’ run – was a wealth tax. Warren called for an “Ultra-Millionaire Tax” that would levy an annual 2% tax on households with net worths between $50 million and $1 billion. Households that have a net worth over $1 billion would have seen a 3% annual tax. Warren has renewed her calls for a wealth tax amidst the pandemic, as inequality grows along with the K-shaped recovery.
Stephen Henley, senior managing director and national tax practice leader at CBIZ MHM, told Insider that wealth taxes like Warren’s and Sanders’s would require wealthy individuals to value their net assets every year, similarly to how assets are valued for an estate tax when someone dies. With a wealth tax, that valuing would be annual – “not just when you die.”
“So somebody that might have $50 million or $100 million of wealth, you can imagine having to go out and get values of all those assets every year would be an administrative nightmare,” Henley said.
Many of those individuals may hold private assets in addition to public ones, another “administrative nightmare” for valuing assets.
“You can also see where that would be ripe for tax avoidance, and even tax evasion,” Henley said.
For instance, if the legislation didn’t require someone to get an appraisal, they’d have to come up with some way to devalue it. Or people could hire appraisers that know the appraisal is for a wealth tax, and “use certain methodologies that will benefit the client.”
Henley also added that the IRS “doesn’t have the manpower or the bandwidth” to increase their auditors, who would audit all of those forms.
So if not a wealth tax, then what? Yellen has indicated that she’s open to some other ways to raise tax revenues.
There may be some other potential changes on the horizon
The Times reports that Yellen is looking into ending one tax rule that could have a significant impact: the “stepped-up basis” on capital gains.
For this kind of tax, Henley gives the example of a piece of land that someone bought for hundreds of thousands of dollars years ago, but now it’s worth $5 million. The owner of that land then passes away, and the land is left to an heir. So even though the land has appreciated in value, it’s passed along to the heir at that current value of $5 million.
Under the current regime, there would be no capital gains tax on how much the land appreciated, even though in fact it would have gained millions of dollars in value. Instead, capital gains taxes would be measured “only on the change in the asset’s value relative to the stepped-up basis,” according to the Congressional Budget Office – aka, gains beyond that $5 million value at the time of inheritance.
“So in other words, if they were to immediately sell the land for $5 million after the will was probated, and they got the land, then they would pay no income tax on that,” Henley said. “No capital gains tax.”
The Times reports that Yellen “plans to explore stopping” that rule.
Henley said that, broadly, Biden’s plan to increase the capital gains tax would be easier to implement than a wealth tax.
“It would probably generate more revenue immediately,” Henley said, “because you’d have everybody that is subject to that threshold over $1 million, either a capital gain over $1 million or income over $1 million – they’d be taxing.”
Per Bloomberg, Yellen also said the Biden administration is looking to raise the corporate tax to 28%. As Insider’s Allana Akhtar previously reported, that increase to 28% from 21% has long been a part of Biden’s tax plan.
Yellen also addressed a financial-transactions tax, a measure which Sanders has said he would use to make college tuition free and ease student debt.
“It could deter speculation but it might also have negative impacts,” she said, according to the Times.