what is a wealth tax 
a wealth tax is a tax based on the market value of assets owned by a taxpayer some developed countries choose to tax wealth although the united states has historically relied on taxing annual income to raise revenue during the 2020 election the immense and increasing disparity in wealth in the united states prompted politicians such as sen bernie sanders i vt and sen elizabeth warren d mass to propose a wealth tax in addition to the income tax in march 2021 warren introduced s 510 a revised version of her earlier proposal to impose a tax on the net worth of very wealthy individuals although the first version failed a new version of her proposal was introduced in 2024 understanding wealth taxesa wealth tax also called capital tax or equity tax is imposed on the wealth possessed by individuals the tax usually applies to a person s net worth which is assets minus liabilities these assets include but are not limited to cash bank deposits shares fixed assets personal cars real property pension plans money funds owner occupied housing and trusts an ad valorem tax on real estate and an intangible tax on financial assets are both examples of a wealth tax 1 generally countries that impose wealth taxes also impose income and other taxes only four organisation for economic co operation and development oecd countries currently levy a net wealth tax france norway spain and switzerland 2 previously in the early 1990s 12 countries reportedly imposed a wealth tax indicating that the popularity of this form of taxation is diminishing 3in the united states federal and state governments do not impose wealth taxes instead the u s imposes annual income and property taxes however some consider property tax a form of wealth tax as the government taxes the same asset year after year the u s also imposes an estate tax on the death of individuals owning high value estates 4however that levy represents a relatively insignificant contribution to u s tax receipts for example in 2020 the total collections from gift and estate taxes were equivalent to only 0 1 of u s gdp 5examples of a wealth taxin effect a wealth tax impacts the net value of the assets accumulated over time and owned by a taxpayer as of the end of each tax year an income tax impacts the flow of the additions in value that a taxpayer realizes whether as earnings investment returns such as interest dividends or rents and or profits on disposition of assets during the year let s look at an example of how the wealth tax differs from income tax assume a single taxpayer earns 120 000 annually and falls in the 24 tax bracket that individual s liability for the year will be 24 120 000 28 800 what is the tax liability if the government taxes wealth instead of income if the taxpayer s assessed net worth is 450 000 and the wealth tax is 24 then the tax debt for the year will be 24 450 000 108 000 in reality annual wealth tax rates are significantly lower than annual income tax rates in france for example the wealth tax used to apply to total worldwide assets 6 as of 2023 however it only applied to real estate assets worth more than 1 3 million 1 400 000 if the value of those assets is greater than 1 3 million the calculation of wealth tax starts at 800 000 6assets between 800 000 and 1 300 000 are subject to a 0 5 tax rates continue to rise at graduated thresholds 0 7 1 1 25 until finally real estate assets over 10 000 000 are taxed at 1 5 a wealth tax cap limits total taxes to 75 of income 76if a taxpayer is not a resident of a particular country then the wealth tax generally only applies to their holdings in that country sen warren s wealth tax proposalhere s sen warren s original 2021 proposal which was to take effect in the 2023 tax year upon introduction the bill had seven senate co sponsors sens kirsten gillibrand mazie hirono edward markey jeff merkley bernie sanders brian schatz and sheldon whitehouse an eighth senator alex padilla later became another co sponsor two house co sponsors reps brenda f boyle and pramila jayapal supported a companion bill in that chamber although the bill died in committee after the second reading sen warren re introduced her wealth tax legislation with nearly identical proposals in march 2024 reps boyle and jayapal sponsored equivalent legislation in the house of representatives 9810pros and cons of a wealth taxproponents of wealth taxes believe this type of tax is more equitable than an income tax alone particularly in societies with significant wealth disparity they believe that a system that raises government revenue from both the income and the net assets of taxpayers promotes fairness and equality by taking into account taxpayers overall economic status and thus their ability to pay tax critics allege that wealth taxes discourage the accumulation of wealth which they contend drives economic growth they also emphasize that wealth taxes are difficult to administer administration and enforcement of a wealth tax present challenges not typically entailed in income taxes the difficulty of determining the fair market value of assets that lack publicly available prices leads to valuation disputes between taxpayers and tax authorities uncertainty about valuation also could tempt some wealthy individuals to try tax evasion direct wealth taxes have been repealed in several countries partly because they tend to scare off wealthy people and hinder foreign investment illiquid assets present another issue for a wealth tax owners of significant illiquid assets may lack ready cash to pay their wealth tax liability this creates a problem for people who have low incomes and low liquid savings but own a high value illiquid asset such as a home similarly a farmer who earns little but owns land with a high value may have trouble coming up with the money to pay a wealth tax some accommodations may be feasible to address administrative and cash flow issues for example allowing tax payments to be spread over a period of years or creating special treatment for specific asset categories such as business assets however exceptions could undermine the purpose that many attach to a wealth tax structuring the overall tax system to make all taxpayers pay their fair share 