The maths appears like this: For a wealthy household’s belongings that both admire over time slowly or by no means (like homes, high-quality artwork and yachts), the 6 % wealth tax would purely cut back wealth — a lot quicker, for instance, than native property taxes on actual property holdings that are usually between 1 % and a couple of % in a lot of the nation.
For protected investments like financial institution deposits or municipal bonds, a 2 or three % wealth tax might nicely eat up round 100 % of curiosity earnings, that means these financial savings may maintain regular over time, whereas a 6 or eight % tax would scale back wealth.
The identical household may earn nicely greater than 6 % or eight % on higher-risk investments, like holdings of inventory in an organization or non-public fairness funds, that means they may nonetheless accumulate wealth, even with a wealth tax. However they’d produce other new taxes to take care of.
Notably, Ms. Warren’s Medicare for all funding plan additionally consists of an concept to require buyers to pay capital positive aspects taxes annually as their belongings rise in worth. Present regulation permits buyers to delay any capital positive aspects invoice till they promote an funding, so individuals can accrue huge fortunes with out ever paying taxes on the wealth. This may be tougher to do with annual capital positive aspects tax obligations.
Furthermore, the existence of those taxes would improve the motivation for a wealthy particular person to take steps to keep away from taxes, a lot of which might have the same impact of lowering their wealth. If you’re a billionaire planning to present a lot of your fortune to charity after your demise, why not accomplish that instantly to keep away from spending many years paying a 6 % annual tax to the federal government? Or, maybe much less nobly, why not spend it on leasing yachts or chartering non-public jets for implausible holidays?
“We now have that backdrop of avoidance methods that cut back wealth, and layer on prime of that the discount in wealth from the mechanical cost of the tax,” stated Greg Leiserson, chief economist on the Washington Heart for Equitable Development. “Each of these will result in doubtlessly dramatic reductions in wealth on the prime of the distribution.”
There’s rather a lot that isn’t identified about how a excessive wealth tax would have an effect on wealthy households and the broader financial system. The expertise with wealth taxes abroad, together with in Denmark and Switzerland, was at charges significantly decrease than these now being debated in the US.