A wealth tax in summary is a tax on (your) assets. A wealth tax is different from an income tax. A wealth tax is a tax on the value of a business’s or an individual’s assets – your house, your car, your investments, etc. – which, in effect, is a tax on the value of your personal assets.
Let’s break it down. Own a car? If you own a nice car worth $50,000 and the implemented wealth tax rate is 10% then you would pay an additional $5000 on top of your federal, state, city and local income taxes. Does your spouse own a car as well? If your spouse owns another nice car worth $40,000 that’s another $4000. Own a home? Have home worth $200,000? That’s another $20,000 paid to the IRS. What about your home? Is it furnished with furniture and other fixtures? Fixtures worth $20000? That’s another $2000 of your hard-earned money paid to the federal government. Do you have cash in checking or savings? $100,000 cash in the bank? That’s another $10,000. Have an IRA or 401K? IRA worth $500,000? Nope. Not anymore. It’s now worth $450,000 because you had to pay the tax man $50,000 at year end. Some explain a wealth tax in net terms outlining your assets less liabilities would then be taxed at the wealth tax rate. This may be what is implemented however to initially generate increased tax revenues the wealth tax rate would have to be applied to gross assets not net assets.
Some foreign countries have implemented a wealth tax including Argentina, Canada, France, Spain, Netherlands, Norway, Switzerland and Italy. But not America… yet! We will use these countries in later parts as glaringly clear examples of how a wealth tax may affect America.
In summary, a wealth tax is basically a policy submitted as a potential tool to raise more federal tax revenues as to reduce growing wealth disparities by not allowing certain American citizens to accumulate personal savings tax free as an attempt to address what these same pro-wealth tax advocates deem “wealth inequality” or “wealth disparity”. During the 2020 Democratic nomination campaigns both Elizabeth Warren and Bernie Sanders supported an “ultra-wealth tax” on the wealthiest American citizens ranging from 2-5%.
For reference, during 2018 the IRS collected tax revenues of $5 trillion dollars. During 2019 tax revenues exceeded 2018’s $5 trillion dollars. For 2020, tax revenues will likely be reduced per CoVid and the government ordered shutdowns. Both 2018 & 2019 recorded the highest tax receipts that flowed into Washington DC ever!
To be fair there are positive and negative spins put on both sides regarding the wealth tax proposals. The undoubtedly positive spin is an even larger increase in tax revenues – at least initially. Contrastingly, the material negative spin is the wealth tax is in effect a confiscating of American assets unconstitutionally and ultimately stagnates wealth and economic growth. We will examine both arguments and benefits further in upcoming parts. So, for now, let’s take time to digest and gather our own thoughts and ponder the major economic impact of a wealth tax if implemented as well as what a wealth tax means for every American life – whether wealthy or poor – so that we can more effectively evaluate and intuitively analyze the famed wealth tax.