Decades of skyrocketing wealth inequality have created distorted economic outcomes and led to broad public support for a tax on the net wealth of millionaires and billionaires. Critics of a net wealth tax cite the difficulty of valuing the various asset classes where the rich tend to hoard their wealth; however, a well-designed system would carefully consider the trade-offs between compliance and enforcement costs and would institute innovative valuation methods to effectively levy a wealth tax.
How to Measure and Value Wealth for a Federal Wealth Tax Reform, by David Gamage, Ari Glogower, and Kitty Richards, is the second part of our series addressing a federal wealth tax. In this report, the authors weigh the different approaches to and tools for assessing the worth of hard-to-value assets, and present a layered approach to designing a tax that addresses the explosive wealth inequality the US faces.
Because the current US tax scheme (which is mainly focused on income and relies on the realization of profits) is vulnerable to wealthy taxpayers looking for loopholes, wealth should be reviewed and taxed annually. For a practical approach to implementation, the authors propose a hybrid of assessment and formulaic valuation models that carefully weigh trade-offs, offer backstops, and consider the difficulties of valuing particular asset categories.