Thursday, February 11, 2021
Florian Scheuer (Zurich; Google Scholar) & Joel Slemrod (Michigan; Google Scholar), Taxing Our Wealth, 35 J. Econ. Perspectives 207 (2021):
In recent years, many European countries decided that a wealth tax did not belong in their armory of tax instruments. Although the United States has never had such a tax, perceptions of unacceptably high income and wealth inequality have recently galvanized support for one, and two prominent US senators have produced detailed proposals. These proposals differ quite substantially from the experience of their European counterparts. Thus, the evidence about the consequences of wealth taxation in Europe is in any event of limited usefulness. On one hand, the broader base along with promised expanded enforcement will limit the revenue leakage and distortion from avoidance and evasion, while exacerbating real behavioral responses. On the other hand, the higher top rates and targeting of the superrich will concentrate the revenue pressure on those taxpayers with the best means and strongest incentives to avoid the tax. Hence, when evaluating these US wealth tax proposals, one can at best hold one’s breath and extrapolate broadly from the European wealth tax experience and the US experience with similar taxes, and gain insight from optimal tax reasoning about whether to tax capital via an annual wealth tax.
Given rising economic inequality in the United States, proposals for taxes on wealth accumulation in some form are likely to remain an ongoing subject of debate.