Creating a Fair Wealth Tax

US wealth inequality has exploded in recent decades, perpetuating racial wealth gaps that have existed since the nation’s founding and exacerbating long-distorted economic outcomes. While our existing tax systems are ill-equipped to tackle these challenges, a well-designed wealth tax for the uber-wealthy could promote shared economic prosperity. 

In How to Measure and Value Wealth for a Federal Wealth Tax Reform—the second in a series of two papers responding to criticisms of a wealth tax—co-authors David Gamage (Professor, Indiana University–Bloomington, Maurer School of Law), Ari Glogower (Associate Professor of Law, The Ohio State University Moritz College of Law), and Kitty Richards (Roosevelt Fellow) make recommendations for how to measure and value wealth in real time for the purposes of a federal wealth tax.

This report proposes a wealth tax that would value assets at their fair market value, and offers a combination of formulaic valuations and appraisals for assets and liabilities that are trickier to value. It also recommends increased IRS funding and expanded resources and enforcement tools. The report’s suggestions include, but are not limited to:

• Requiring that all interest-bearing savings accounts, cash, and other deposits are reported and valued at their dollar cash value as of the end of the last day of each tax year;
• Using local government appraisals as one basis for wealth tax valuations of real estate, but combining these with a minimum value formula to limit the extent to which undervaluation by local authorities can reduce federal wealth taxes; 
• Taxing trusts separately with no exemption, which could have the effect of imposing a greater relative tax on wealth held through trusts, as compared to wealth held directly by the taxpayer; and 
• Creating anti-abuse rules similar to those that have been adopted for the existing mark-to-market provisions of the US income tax for publicly traded assets.

These suggestions are meant to minimize the opportunity for tax avoidance through undervaluation.

Insight from the Authors

“It should be understood that valuation and measurement are no more inherently challenging when it comes to designing and implementing a wealth tax than they are for designing and implementing an income tax. Through a combination of increased IRS funding and enforcement resources and a practical mix of formulaic valuations and appraisals, a wealth tax could be designed so as to raise substantial revenues from the very wealthy and restore equity to our tax system,” said Gamage.

“Asset valuation presents real challenges in wealth tax design, but these challenges are surmountable. Readily available data points can yield estimated valuations that are fair to taxpayers but that can also minimize gaming. The challenges in valuing assets also create problems for the current income tax, and these challenges should not be misconstrued as fundamental barriers to significant tax reform,” said Glogower.

“As a result of the COVID-19 pandemic, Americans have woken up to the real wealth inequality in this country, and they want real economic change. And now is a good time for policymakers to do it. The 2020 presidential campaigns of Senators Elizabeth Warren (D-MA) and Bernie Sanders (I-VT) brought the idea of a wealth tax to the national stage. Their proposals to tax the wealth of multimillionaires and billionaires generated broad public support—even among many Republicans—and broadened the conversation over the future of progressive tax reform,” said Richards.

About the Roosevelt Institute

The Roosevelt Institute is a think tank, a student network, and the nonprofit partner to the Franklin D. Roosevelt Presidential Library and Museum that, together, are learning from the past and working to redefine the future of the American economy. Focusing on corporate and public power, labor and wages, and the economics of race and gender inequality, the Roosevelt Institute unifies experts, invests in young leaders, and advances progressive policies that bring the legacy of Franklin and Eleanor into the 21st century.

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