My goal throughout this series has been to cut $8.1 billion from the Federal Budget to stabilize the debt at 100% of GDP by 2035. So far I’ve saved $6.55 Trillion (T) by choosing various budget and policy options. See Part II, Part III and Part V for details.
Not bad, but $6.55T is still $1.55T short of the goal. In the last post, I turned to the possibility of raising income taxes on the super-wealthy - say, the top 1%. But that group already pays over 40% of their income in taxes, with the wealthiest 19,000 U.S. households (technically, “tax units”) paying 58%.
Should we raise income taxes a bit more on the super-rich? Maybe, but not so much that it undermines the country’s economic vitality and growth. After all, the super-rich include a lot of people who start businesses, run businesses, and invest in businesses, ie people who create jobs, fund private R & D and boost innovation. They need their income to do these things.
Should we tax their wealth instead?
I’ll give my answer to that question after addressing various considerations.
1. How much wealth are we talking about? Defining the super-rich as anyone in the top 1%, the answer is around $34 billion:
2. Where do the wealthiest Americans get their wealth? Per the Federal Reserve, almost half comes from private businesses they own.
Note: Private business assets are items of value that one’s business owns or creates, including cash, inventory, equipment, buildings and intellectual property. Consumer durable goods are products purchased by individuals or households for personal use that are designed to last for an extended period, typically three years or more, eg jewellery appliances, electronics, vehicles and furniture. Corporate equities are ownership shares of joint-stock corporations. Stocks are an investment in a single company, whereas mutual funds have many investments in a single fund. Defined benefit pension plans promise a specified monthly benefit at retirement, whereas contributed benefit plans do not. Real estate includes residential, commercial, industrial, raw land, and special use properties such as private schools and museums. Other assets include cash, art, collectibles, vehicles, etc.
3. What is the case for a wealth tax?
“…there is a strong case for addressing wealth inequality through the tax system. Wealth inequality is far greater than income inequality, and there is some evidence suggesting that wealth inequality has increased in recent decades. In addition, wealth accumulation operates in a self-reinforcing way and is likely to increase in the absence of taxation. High earners are able to save more, meaning that they are able to invest more and ultimately accumulate more wealth. Moreover, investment returns tend to increase with wealth, largely because wealthy taxpayers are in a better position to invest in riskier assets and generally have higher levels of financial education, expertise and access to professional investment advice.” - The Role and Design of Net Wealth Taxes in the OECD, Organization for Economic Co-operation and Development* (OECD), 2018
4. How much tax revenue would a wealth tax raise in the U.S.?
“Revenue estimates for a wealth tax differ based on the components of the proposals and on assumptions about enforcement and evasion. For example, Saez and Zucman estimate that in 2019, $9.4 trillion of U.S. household wealth, or 51 percent of GDP, would be subject to a wealth tax with a $50 million threshold. Using those estimates, if a 1 percent wealth tax were imposed on all assets comprising that base and no evasion occurred, the tax would raise an additional $94 billion, or about 3 percent of total federal revenues in 2019; if enforcement were weak and base erosion were 50 percent, the amount of revenues raised would be half as large.” - What Is a Wealth Tax, and Should the United States Have One? Peterson G. Peterson Foundation, last updated February 20, 2025.
5. What has been the experience of other developed countries that have had a tax wealth?
“The OECD maintains detailed tax revenue statistics for its 38 member countries. The data includes revenues from taxes on the net wealth of individuals. According to these data, the number of current OECD members that have collected revenue from net wealth taxes* has grown from eight in 1965 to a peak of 12 in 1996 to just five in 2020…Among those five OECD countries collecting revenues from net wealth taxes, revenues made up just 1.5 percent of total revenues on average in 2020.” - What the U.S. Can Learn from the Adoption (and Repeal) of Wealth Taxes in the OECD by Daniel Bunn/The Tax Foundation, January 18, 2022.
6. Problems associated with wealth taxes:
“Wealth taxes not only collect little revenue and create legal uncertainty, but an OECD report argues that they can also disincentivize entrepreneurship, harming innovation and long-term growth. Instead of reforming and hiking the wealth tax, one of the most harmful taxes ever created, countries should repeal it.” - Wealth Taxes in Europe, 2025. By Cristina Enache/The Tax Foundation, February 25, 2025.
Based on the experience of OECD countries and the lower estimate given for the U.S. by Saez and Zucman., I’m going to assume a wealth tax in the U.S. would bring in around 1.5% of total federal tax revenue on average. Last year the IRS collected close to $5 trillion in tax revenue. $5 trillion x 1.5% = $75 billion. That’s peanuts compared to my $1.55 trillion deficit gap.-
So should we tax the wealth of the top 1%? It’s probably not worth it, given the risks and the relatively meager payoff.
References:
Progressive Wealth Taxation Emmanuel Saez and Gabriel Zucman/ Brookings Papers on Economic Activity, Fall 2019. https://gabriel-zucman.eu/files/SaezZucman2019BPEA.pdf
The Role and Design of Net Wealth Taxes in the OECD April12,2018. https://www.oecd.org/en/publications/the-role-and-design-of-net-wealth-taxes-in-the-oecd_9789264290303-en.html#page65
Wealth Taxes in Europe, 2025. By Cristina Enache/The Tax Foundation, February 25, 2025. https://taxfoundation.org/data/all/eu/wealth-taxes-europe/
What Is a Wealth Tax, and Should the United States Have One? Peterson G. Peterson Foundation, last updated February 20, 2025. https://www.pgpf.org/article/what-is-a-wealth-tax-and-should-the-united-states-have-one/
What the U.S. Can Learn from the Adoption (and Repeal) of Wealth Taxes in the OECD January 18, 2022. By Daniel Bunn /The Tax Foundation, January 18, 2022. https://taxfoundation.org/blog/wealth-taxes-in-the-oecd/