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Sen. Warren Introduces Wealth Tax Bill

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What You Need to Know

  • The Ultra-Millionaire Tax Act would levy a 2% annual tax on the net worth of households and trusts between $50 million and $1 billion.
  • The bill is highly unlikely to pass, Ed Slott says.
  • A tax based on net worth would be difficult to implement.

Sen. Elizabeth Warren, D-Mass., unveiled early Monday the Ultra-Millionaire Tax Act, which would impose a 2% annual tax on the net worth of households and trusts between $50 million and $1 billion.

The bill, introduced with Reps. Pramila Jayapal, D-Wash., and Brendan Boyle, D-Pa., “would level the playing field and narrow the racial wealth gap by asking the wealthiest 100,000 households in America, or the top 0.05%, to pay their fair share,” the lawmakers said Monday in a statement.

The lawmakers cite a 2021 analysis by economists Emmanuel Saez and Gabriel Zucman from the University of California, Berkeley, which found that the legislation would bring in at least $3 trillion in revenue over 10 years — without raising taxes on the 99.95% of American households that have net worth below $50 million.

The bill would also impose a 1% annual surtax (3% tax overall) on the net worth of households and trusts above $1 billion.

Co-sponsors of the bill are: Sens. Bernie Sanders, I-Vt.; Sheldon Whitehouse, D-R.I.; Jeff Merkley, D-Ore.; Kirsten Gillibrand, D-N.Y.; Brian Schatz, D-Hawaii; Edward Markey, D-Mass.; and Mazie Hirono, D-Hawaii.

“The ultra-rich and powerful have rigged the rules in their favor so much that the top 0.1% pay a lower effective tax rate than the bottom 99%, and billionaire wealth is 40% higher than before the COVID crisis began. A wealth tax is popular among voters on both sides for good reason: because they understand the system is rigged to benefit the wealthy and large corporations,” Warren said in the statement.

“As Congress develops additional plans to help our economy, the wealth tax should be at the top of the list to help pay for these plans because of the huge amounts of revenue it would generate,” Warren said.

‘An Estate Tax Every Year’

Ed Slott of Ed Slott & Co., told ThinkAdvisor Monday in an email that Warren’s wealth tax “will never happen.”

The idea of a wealth tax “may sound fair to those who are not anywhere near that wealthy and believe these people should pay more, but it would be almost impossible to put into place and enforce and to do it each year. There is just no way this kind of tax can be practically assessed.”

First, Slott continued, “this is a tax based on Net Worth, which is essentially the same process as preparing an estate tax return after death. But under this proposal the tax would be assessed each year. This would essentially be an estate tax every year for this group. That’s insane.”

Estates of these ultra-wealthy individuals “often take years to sort out to determine the actual value for estate tax purposes. These estates are loaded with complex business interests, stock and other property held both in the U.S. and around the world and in trusts and other entities that may be difficult to locate (and they would suddenly be even more difficult to locate – or disappear altogether – if this was ever enacted.)” Slott added.

The U.S. “would probably lose billions in tax revenue from the tax shenanigans that would follow a tax like the one proposed,” he added.

Also, “remember that these individuals have the means to make sure they will never pay these taxes,” Slott added.

Andy Friedman, founder and principal of The Washington Update, told ThinkAdvisor in an email that Warren has been proposing a wealth tax “since well before the Democratic debates. Some observers assert that a tax based on wealth, rather than on income, is unconstitutional. I will leave that question to the constitutional lawyers.”

That being said, “a tax based on wealth appears exceedingly difficult to implement administratively,” said Friedman, a former tax attorney. “For large estates, lengthy litigation is often required to settle valuation disputes. It is hard to imagine the IRS undertaking that valuation process every year.”

Additional Provisions

The Ultra-Millionaire Tax, according to the lawmakers, would also provide for:

  • A $100 billion investment to rebuild and strengthen the IRS, ensuring the agency has the resources to hire and train additional personnel, modernize IT systems, and implement the new asset valuation, reporting and enforcement requirements in the bill.
  • A 30% minimum audit rate for taxpayers subject to the Ultra-Millionaire Tax;
  • A 40% “exit tax” on the net worth above $50 million of any U.S. citizen who renounces their citizenship in order to escape paying their fair share in taxes;
  • New tools to determine the value of hard-to-value assets, enabling the IRS to tighten and expand upon existing valuation rules; and
  • Systematic third-party reporting that builds on existing tax information exchange agreements adopted after the Foreign Account Tax Compliance Act, and penalties for underpayment.