Paul L. Caron

Wednesday, August 28, 2019

WSJ: Democrats’ Emerging Tax Idea: Look Beyond Income, Target Wealth

Wall Street Journal, Democrats’ Emerging Tax Idea: Look Beyond Income, Target Wealth:

The income tax is the Swiss Army Knife of the U.S. tax system, an all-purpose policy tool for raising revenue, rewarding and punishing activities and redistributing money between rich and poor.

The system could change fundamentally if Democrats win the White House and Congress. The party’s presidential candidates, legislators and advisers share a conviction that today’s income tax is inadequate for an economy where a growing share of rewards flows to a sliver of households.


For the richest Americans, Democrats want to shift toward taxing their wealth, instead of just their salaries and the income their assets generate. The personal income tax indirectly touches wealth, but only when assets are sold and become income.

At the end of 2017, U.S. households had $3.8 trillion in unrealized gains in stocks and investment funds, plus more in real estate, private businesses and artwork, according to the Economic Innovation Group, a nonprofit focused on bringing investment to low-income areas. Most of the value of estates over $100 million consists of unrealized gains, said a 2013 Federal Reserve study. Much has never been touched by individual income taxes and may never be.

Democrats are eager to tap that mountain of wealth to finance priorities such as expanding health-insurance coverage, combating climate change and aiding low-income households. Their ideas range from new rules on inherited assets, to a plan by Sen. Ron Wyden for annual taxes on unrealized gains, to a proposal from Sen. Elizabeth Warren to tax wealth itself. These come atop more conventional proposals to raise income taxes and expand estate taxes. ...

The Democratic debate on taxing wealth is one facet of a bigger, often contentious discussion. Experts across the political spectrum agree income inequality widened in recent decades, and wealth inequality even more. There is little agreement on what, if anything, the government should do about it.

Many on the right believe narrowing the gap between the rich and middle class matters less than raising the incomes of the middle class. That, they say, calls for measures to boost investment and educational opportunity. Many conservatives argue that taxes targeted at the rich could hinder investment in ways that would hurt everyone’s wages and discourage the creation of wealth in the first place. ...

Liberals, by contrast, see extreme inequality as morally wrong and socially divisive, and regard the current system, which taxes income generated by wealth more lightly than wages, as especially objectionable and a contributor to wealth gaps between blacks and whites.While the current income tax is already progressive—rates are higher for people whose income is higher—Democrats say progressivity breaks down at the very top because reduced corporate taxes, preferential rates for capital gains and a narrowed estate tax are especially favorable to the wealthiest Americans. If Democrats gain unified control of government in 2021, rich households, including heirs living off inheritances and company founders compensated with stock, will be in the crosshairs. ...

In campaigns, Congress and academia, Democrats are shaping tax plans for 2021, when they hope to have narrow majorities. There are three main options.

  1. The Biden Plan ...
  2. The Wyden Plan ...
  3. The Warren Plan ...
The Biden Plan

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How about taxing inherited wealth, like parents who teach at Harvard Law School?

Posted by: Mike Livingston | Aug 30, 2019 3:37:30 AM

It's only a matter of time. The various governments (federal, state, and local) have an insatiable appetite for money. The next target, I predict, will be to alter the rules for IRAs and 401(k)s. And you thought it was only going to get taxed once.

Posted by: ruralcounsel | Aug 29, 2019 3:49:17 AM