Democrats' emerging tax idea: Look beyond income, target wealth

[Yo_Mama_Been_Loggin]

The income tax is the Swiss Army Knife of the U.S. tax system, an all-purpose policy tool for raising revenue, rewarding and punishing activities and redistributing money between rich and poor.

The system could change fundamentally if Democrats win the White House and Congress. The party’s presidential candidates, legislators and advisers share a conviction that today’s income tax is inadequate for an economy where a growing share of rewards flows to a sliver of households.

For the richest Americans, Democrats want to shift toward taxing their wealth, instead of just their salaries and the income their assets generate. The personal income tax indirectly touches wealth, but only when assets are sold and become income.

At the end of 2017, U.S. households had $3.8 trillion in unrealized gains in stocks and investment funds, plus more in real estate, private businesses and artwork, according to the Economic Innovation Group, a nonprofit focused on bringing investment to low-income areas. Most of the value of estates over $100 million consists of unrealized gains, said a 2013 Federal Reserve study. Much has never been touched by individual income taxes and may never be.

Democrats are eager to tap that mountain of wealth to finance priorities such as expanding health-insurance coverage, combating climate change and aiding low-income households. Their ideas range from new rules on inherited assets, to a plan by Sen. Ron Wyden for annual taxes on unrealized gains, to a proposal from Sen. Elizabeth Warren’s to tax wealth itself. These come atop more conventional proposals to raise income taxes and expand estate taxes.

“The whole tax system is stacked in favor of the tax-avoidance crowd,” said Mr. Wyden, who would lead the tax-writing Finance Committee if Democrats retook the Senate. “When you stand up and you say, hey look, you’ve got one system for a cop and a nurse and another for highfliers to pay what they want to, when they want to, everybody nods.”

https://www.msn.com/en-us/money/markets/democrats-emerging-tax-idea-look-beyond-income-target-wealth/ar-AAGp2JH?li=BBnbfcN

[wryter2000]

1. Good idea if

It only applies to wealth over a certain amount. Most people who are buying a house have some wealth in the form of equity. People also have 401's. We need to hit the super rich, not the average person. And anyone who proposes this tax needs to make this clear.

[Yo_Mama_Been_Loggin]

3. I think real estate property taxes already are a form of wealth tax.

For that reason I'm not sure if ones home (at least to a certain value) should count towards determining weather one pays the wealth tax or not.

[BlueMTexpat]

6. They are indeed.

And Elizabeth Warren has made that point when she speaks to audiences.

Btw, as a legal resident of Switzerland, I must pay BOTH income and wealth taxes (as well as US taxes)! Of course, my "wealth" is laughable compared to most expats who live in Switzerland, so my wealth tax is negligible.

But it is a good revenue generator from those who are most able to afford it ... and they ARE!

[Igel]

11. It's a good thing that the federal and state constitutions are identical.

Except that they're not.

Take, for example, the gerrymandering verdict from SCOTUS. Versus the Pennsylvania SC verdict. Different findings based on different law.

[MichMan]

18. Didn't the income tax only apply to the wealthy when first launched?

We know how that worked out

[a kennedy]

2. I even love the sound of that a wealth tax.

[Mariana]

4. Would this require a Constitutional Amendment?

We needed an Amendment for the federal government to tax income.

[redstatebluegirl]

5. Taxing income does nothing to the uber rich.

They hide it in stock options so they don't have to pay any payroll or income tax. The capital gain tax rate is key to me. Go get them on their main source of wealth. We also need to address all of the money and wealth companies and individuals hide abroad. Not sure how to do that, but it really needs to be done.

[BlueMTexpat]

7. As to your last point, many efforts

are being made, although they still don't generally apply to private banks that do not have US branches.

But big internationals, such as UBS and Credit Suisse must now report ALL US accounts to the IRS.

[brewens]

8. I say most of the hole we're in, is largely because we gave the wealthy tax cuts. We've

also allowed them to bribe Congress and loot mercilessly.

[exboyfil]

9. Makes the most sense

Top 3 wealthiest hold as much wealth as the bottom 50%. I would like to know how much total federal taxes they pay compared to that bottom 50%.

We have folks like Buffett and Gates talking about how they don't pay enough in taxes. I would like to have their accountants (or other accountants) testify about these avoidance schemes. Also have them involved in drafting the legislation.

[Igel]

12. Devil's in the details.

Make people pay on annual unrealized profits based on some valuation on a specific day, you're likely to find that in the event of a recession when the government is already losing revenues that the market tanks and dependency on that funding source is a bad thing. Then, when you focus on the valuation on that specific day you'd find that people have a net unrealized loss.

Then they'd have paid tax on money they never had, only to find the taxed money vanished

Then, the next year, when the stock market's back up, they're paying tax on the same appreciation a second time.

[MichMan]

17. I have the feeling most people would care less how many times the same money is taxed

As long as it applies to someone else

[pecosbob]

10. Good thing we have a tax policy wonk running

[GulfCoast66]

13. Not sure it is constitutional.

Direct taxes were prohibited by the constitution until the 16th amendment. Which is pretty clear it only applies to income. Seems with that exception the constitution still holds sway.

Not sure we could do it regardless of how good an idea it is.

[grantcart]

14. Then how are they able to tax property?

[GulfCoast66]

16. State taxes. The constitution does not control state taxes.

State constitutions do. In Florida it is unconstitutional to charge income taxes.

But I’m not a lawyer and did not stay in a Holiday Inn Express last night! But a wealth tax seems problematic to me.

[grantcart]

20. I once had a Surgeon who was 28 years old and looked 22.

I asked her if her patients asked her if she was a real surgeon because she looked so young.

She laughed and said every patient except me asked her that.

When I came for the follow up interview I made up a really nice sign that said,

"No I am not a Surgeon but I did stay in a Holiday Inn Express last night".

They loved it.

Yes I understand that state constitutions provide or prohibit state income taxes. (I am from Washington State originally and we regularly got killed trying to add a state income tax.

You are correct about the amendment being needed for income tax BUT it does allow for taxes that are not proportional.

For example there is an inheritance tax which is based on wealth and not income.

The issue is discussed here:
https://www.latimes.com/business/hiltzik/la-fi-hiltzik-warren-wealth-tax-20190125-story.html

I am guessing that it is a close enough issue that the US Supreme Court could decide either way depending on its composition.

[Massacure]

15. I don't think I would support this

The United States would have to set up a whole new mechanism to collect those taxes. It would be a lot easier to work within the current tax systems. For example:

1) Treat capital gains as normal income instead of giving it a preferential tax rate.
2) Add addition tax brackets to corporations. Right now it is a flat 21%; we could add somethings along the lines of a 28% bracket at $100 million, a 35% bracket at $1 billion, and a 42% bracket at $10 billion.

[Wounded Bear]

19. It's about time...

[ooky]

21. I'm not sure I could support this.

I'm not sure its even constitutional, and not really a fan of taxing the same assets over and over. I support a robust inheritance tax and gift tax though, plus the elimination of tax shelters for the wealthy, and raising the top tax brackets to 70, 80, even 90% (particularly for some of our CEO's, as an incentive to share some more of their wealth with their employees). I think a combination of those types of taxes could be done faster and deliver the amount of revenue we would be seeking from a wealth tax that is sure to bring a long and drawn out fight in the courts, a fight that I fear we would lose anyway.