Wednesday, August 7, 2019
David Gamage (Indiana), Five Key Research Findings on Wealth Taxation for the Super Rich:
This essay summarizes five key findings from the author’s in-progress research evaluating the potential of wealth tax reform proposals for taxing the super rich. These five key findings are as follows:
- The existing U.S. tax system does a very poor job of meaningfully taxing the super rich.
- There are only two approaches for reform that could plausibly succeed in making it so that the U.S. tax system would meaningfully tax the super rich: wealth taxation and mark-to-market taxation (sometimes known as “accrual” taxation).
- Piecemeal reforms to the existing tax system that some have argued for as “progressive alternatives” to wealth tax reforms should be thought of as complements to wealth taxation rather than as competitors.
- Much of the public criticism of wealth tax reform proposals ignores recent legal scholarship on valuation methodologies and other implementation design options, to the extent that this criticism mostly only applies to outdated, “straw man” versions of how a modern wealth tax might be implemented.
- Concerns about the Supreme Court striking down wealth tax reforms as unconstitutional can be addressed by including fallback options in the wealth tax legislation.
In summary, a wealth tax is the best option for reforming the U.S. tax system so as to meaningfully tax the super rich. That said, it is important to acknowledge that if the goal is to raise massive amounts of revenue, a wealth tax on its own is unlikely to be sufficient, as achieving this goal would probably require combining the wealth tax with something like a value added tax, comprehensive business tax reform, or hiking the income tax rates affecting the middle class and lower-upper class in addition to those affecting the super rich. But if the goal is to raise a moderate, but substantial amount of revenue, while restoring fairness to the U.S. tax system by preventing the super rich from escaping progressive levels of taxation, then what is needed is either a wealth tax or a mark-to-market tax reform. And, of these two options, a sophisticated, modern wealth tax is administratively superior, less vulnerable to gaming by super-rich taxpayers, and easier to explain to lay audiences and to the voting public. For all of these reasons, a wealth tax is the best option for reforming the U.S. tax system so as to meaningfully tax the super rich.