How much would a wealth tax raise?

From Larry Summers and Natasha Sarin:

We reasoned as follows: The existing estate tax is a wealth tax levied at the time of death. If 2 percent of wealthy families experience a death and intergenerational transfer (rather than a spousal transfer) each year, then the current 40 percent estate tax should roughly be the equivalent of a wealth tax of 40 percent multiplied by 2 percent — or a 0.8 percent wealth tax — assuming equivalent definitions of wealth and the same threshold for taxation. Since most wealth is held by fairly elderly people, and the mortality rate of 70-year-olds is above 2 percent, we suspect that 2 percent mortality is a conservative estimate. So the actual wealth-tax equivalent of the estate tax is likely greater than 0.8 percent.

The IRS reports that for 2017, the most recent year for which data is available, the estate tax raised around $10 billion from estates over $50 million — and this included tax collected on the first $50 million of estate tax value, so it overestimates the conceptually appropriate figure. Therefore, if this is what the revenue yield would be from a 0.8 percent wealth tax, the implication is that a 2 percent wealth tax would raise a total of $25 billion. That’s around one-eighth of the Saez and Zucman estimate.

There is much more of interest at the link.

Comments

'The existing estate tax is a wealth tax levied at the time of death.'

And there are plenty of ways to avoid it. Why, the Mercatus Center used to have an entire page dedicated to this as part of their donor framework. These days, it is not so easy for everyone to read, as this is the current process for getting the latest information - 'Please contact Raleigh Dierlam at rdierlam@mercatus.gmu.edu or 703-993-9670 to start a gift or learn more about planned giving opportunities.' Planned giving being such a nicer term than estate tax avoidance, depending on the plan selected.

However, there is no question that the result of a wealth tax would likely be the same as attempting to simply collect already existing tax obligations from the wealthy.

'The IRS’ new approach to taking on the superwealthy has been stymied. The wealthy’s lobbyists immediately pushed to defang the new team. And soon after the group was formed, Republicans in Congress began slashing the agency’s budget. As a result, the team didn’t receive the resources it was promised. Thousands of IRS employees left from every corner of the agency, especially ones with expertise in complex audits, the kinds of specialists the agency hoped would staff the new elite unit. The agency had planned to assign 242 examiners to the group by 2012, according to a report by the IRS’ inspector general. But by 2014, it had only 96 auditors. By last year, the number had fallen to 58.

The wealth squad never came close to having the impact its proponents envisaged. As Robert Gardner, a 39-year veteran of the IRS who often interacted with the team as a top official at the agency’s tax whistleblower office, put it, “From the minute it went live, it was dead on arrival.”

Most people picture IRS officials as all-knowing and fearsome. But when it comes to understanding how the superwealthy move their money around, IRS auditors historically have been more like high school physics teachers trying to operate the Large Hadron Collider.

That began to change in the early 2000s, after Congress and the agency uncovered widespread use of abusive tax shelters by the rich. The discovery led to criminal charges, and settlements by major accounting firms. By the end of the decade, the IRS had determined that millions of Americans had secret bank accounts abroad. The agency managed to crack open Switzerland’s banking secrecy, and it recouped billions in lost tax revenue.

The IRS came to realize it was not properly auditing the ultrawealthy. Multimillionaires frequently don’t have easily visible income. They often have trusts, foundations, limited liability companies, complex partnerships and overseas operations, all woven together to lower their tax bills. When IRS auditors examined their finances, they typically looked narrowly. They might scrutinize just one return for one entity and examine, say, a year’s gifts or income.' https://www.propublica.org/article/ultrawealthy-taxes-irs-internal-revenue-service-global-high-wealth-audits

Charity is tax fraud! In Germany private charity is rightfully banned and all charity must go through the benevolent state.

As you might have guessed, this isn't true. (I am the retired director of research for the Ford Foundation.)

The sound is bad

An elite IRS unit -- The Wealth Squad! Pair a no-nonsense by-the-book female agent with a slightly quirky cynical male, add a purple-haired analytics whiz and a street-wise black female administrator back at HQ and you have a hit new series, this fall on ABC!

... It would be like Columbo, except each week they'd get the evil rich person -- Shatner, Lee Grant, Robert Vaughn etc. -- to cough up the loot

The estate tax is not a wealth tax. It's a tax on a transaction, a transfer, a flow. Wealth is a stock, not a flow.

Naw, the estate tax is actually a death tax. Just ask anyone opposed to them.

Not necessarily, estate and inheritances taxes have long been referred to as "death taxes" even by those who support them. As far as I am aware, FDR never opposed estate or inhertances taxes or even "death taxes"!

http://taxhistory.tax.org/thp/readings.nsf/ArtWeb/8A9A1B6BF4F6B9978525766B0059ADE3?OpenDocument

And, estate and inhertance taxes, otherwise known as "death taxes" have far more similarity to a wealth tax than, say, a real estate property tax.

And, the event that triggers the estate and inheritance tax, which Anon distinguishes a stock from a flow, is death!

No, the estate tax is not like a wealth tax. It is like the real estate transfer tax:

https://www.upnest.com/1/post/transfer-tax-who-pays-what-in-washington-dc/

"So what exactly is real estate transfer tax? Transfer tax is a tax imposed by states, counties, and cities on the transfer of the title of real property from one person (or entity) to another within the jurisdiction. It is based on the property’s sale price and is paid by the buyer, seller, or both parties upon transfer of real property. Unlike property tax, transfer tax is a one-time, non recurring tax."

Okay to all contributors in this thread, but note that this wholel argument about flows and stocks has no bearing on Summers' ans Sarins estimate.

A wealth tax would bring in billions the first year but very little after that. And of course as the rich move their money and investments overseas the economy would go down hill and thus the rest of the income taxes would go down. All that would be left is the dead goose.

Moving wealth overseas would do nothing to reduce a US wealth tax any more than currently it avoids estate tax. More likely, the wealthy would use the very same technique to avoid wealth tax as they currently use to avoid estate tax---they would transfer their wealth to tax exempt foundations inter vivos while retaining effective control over the latter. What do you think Buffett, Gates, Bezos, et al are currently fdoing? The federal government is never going to raise significant revenues from a wealth (or estate) tax until they deny the deduction/exclusion for tranfsers to so-called "tax-exempt" entities. This isn't likely to happen any time soon as the tax exempts have succeeded more than any other interest in capturing government regulation. The flow from government to tax-exempts and back again by politicians is too powerful to be overcome by the relatively powerless taxpaying public . Even so-called "public-intellectuals", your hosts included, benefit from this scheme.

Well said.

Well said but not true. Do you really think wealthy people do not know how to keep their money out of the IRS's hands. There is some level of taxation that people will refused to participate in. Open your eyes. What we need is more millionaires and more billionaires not less. Don't let your greed cloud your judgement.

Also argues for a light touch. We get $10 billion today from the death tax. Get too greedy and trigger more evasive action.

Death and taxes are inevitable, but not death taxes.

OK, Anon, let me have it. What exactly, aside from your conclusory statement, is what I wrote "not true".

It's been tried. Many times, Never worked. Ain't going to work now or in the future. The Fascist Insect has the superior brain power to take what it wants and keep it. Not content with sucking the lifeblood of the People, the Fascist Insect in collusion with the Deep State will crush the People's faces under its jackboots in its insatiable blood-lust for ever more tax shelters.
Such is life in Trump's America.

Good comment. Unfortunately, for this kind thing to be effective you need to capitalize Jackboots and also mention Civil War. Otherwise it just comes off as shitposting.

I can not imagine Brazilians living under such a system controlled by malefactors of great wealth. Why don't Americans rebel against their masters? Brazil, in its righteous might, overthrew the Portuguese rulers, a regent, two Emperors, five Brazilian presidents and at least three other South American rulers.

It works pretty well in Switzerland. In exchange, there is no capital gains tax for citizens. And I personally find this System preferable. I rather pay a 0.5% wealth tax than a 15% capital gains tax. (That’s the US rate, right?)

What is being taxes in Switzerland? Wealth upon transfer at death, or every year wealth is taxed? I am not sure which is a 'wealth tax'. As the study says, not enough people die every year for wealth tax at death to raise money.

Bonus trivia: the richest Greek in the world lives in Switzerland, a banker. I tried to get my senile Greek uncle (before he turned completely senile) to put his money in a Swiss bank, but instead, the poor rich fool pulled it out of Greek banks (against my knowledge), put it under his mattress (among other places), and the Albanian help got half of it before I discovered the other half. They also got all his gold coins and other wealth. Amazing amount of money. He did not trust the Swiss even, that's how paranoid he was, and got burned. RIP.

Spread it around Ray, like my man Barry O. says.

"insatiable blood-lust for ever more tax shelters"

LOL!

When introduced, the income tax was sold as only being applicable to a tiny slice (less than 1% IIRC) of ultra high come people. That didn’t last.

If adopted, one should expect that the scope of a wealth tax will similarly be extended to the middle class. Anyone with more than mean assets will eventually be a target, although I would expect the truly rich to be more successful at avoidance than the middle/professional class.

It's the slowly boiling the frog approach. Instead, any such tax should subject the middle class to it from the very beginning to make them pay for their envy and see if they really think it's worth it.

It seems odd to discuss a proposed wealth tax without discussing the one already in place which raised $488 billion in revenue for 2015: https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/projects/state-and-local-backgrounders/property-taxes

Property taxes are asset taxes, whereas a wealth tax would be a tax on net worth. That is, the owner of real estate pays the property tax even if he or she has a zero (or negative) net worth due to the mortgage, college debts, etc.

Cowen has posted about Henry George's "single-tax", an ad valorem tax on land. It's not easy to evade that tax. Florida has an ad valorem tax on real estate (land and improvements), but it's been eroded with exceptions, exclusions, and discounts. Florida used to have an ad valorem tax on intangibles (stocks, bonds, etc.), but it was repealed because it was easily avoided (by moving the intangibles outside Florida). If there were a national ad valorem tax on intangibles, I suppose it too could be avoided by moving the intangibles to (for example) Switzerland. That leaves George's single-tax as the one tax that can't be avoided because the subject of the tax, the land, can't be moved or hidden. An argument against the tax is that land doesn't always equate with wealth or ability to pay, the expression "house poor" a familiar one. On the other hand, it might discourage people from buying McMansions in the suburbs with a 90% mortgage.

What does China do? It's complicated. For one thing, there are two distinct systems, one for urban land and one for rural land. Urban land has been owned by the state since 1982, while rural land has been owned by "cooperatives". The system for urban land has been undergoing change. In the 1990s, the state started selling leases to urban land, up to 70 year leases for residential use, 40 year leases for commercial use, and 50 year leases for all other uses. The leaseholds are sold for cash, meaning that the government has in effect been front-loading "tax" collections. By some estimates, local governments fund up to 35% of their budgets from sales of the leases. What happens at the end of the lease term? It was vague. In 2007, it was declared that renewal of the residential leases would be "automatic". That too was vague. Finally, in 2017, Premier Li announced that the renewals would be perpetual and free. So what does this mean? It means China can now impose ad valorem taxes (since perpetual, free renewals is equivalent to outright ownership). China first confiscated land, then sold long-term leases for cash, and can now impose annual ad valorem taxes on land. I assume that America would skip the first step. https://www.foreignaffairs.com/articles/china/2017-05-16/has-china-restored-private-land-ownership

Might as well hit 'em with a Life Tax for a few decades before you nail 'em with the Death Tax. It's for the children!

Yeah, but this is one of those "politics is not about policy" kinds of issues.

“Since most wealth is held by fairly elderly people, and the mortality rate of 70-year-olds is above 2 percent, we suspect that 2 percent mortality is a conservative estimate. So the actual wealth-tax equivalent of the estate tax is likely greater than 0.8 percent.“

Is it just me, or is this the wrong way around? If people die more frequently, a *lower* rate suffices to collect the same amount.

We’re trying to estimate what wealth tax percentage the existing inheritance tax is equivalent to. That number is the product of the weighted average mortality percentage per year and the amount of the inheritance tax, so it increases as the age of the people whose heirs pay the tax increases.

-dk

A simple tax dedicated to support Medicare, but really transfer money to the Treasury.

The last six months of healthcare costs are deducted from the estate, unless there is a surviving spouse, in which case it is deducted after the spouse dies.

Missed on the headline - should be "How much wealth would a wealth tax tax?"

Does Tyler agree with Ray Dalio? Is our system out of balance? Is the double line profit a good place to search for answers?

Property taxes average about 1% of real estate value and raise more than $200 billion annually.

^^^ wealth tax.

That number seems very low. Per this source, the total state and local tax revenue from property taxes is about $700 billion. BTW, one of the reasons a property tax raises so much revenue is that it is not a "wealth tax". The tax is assessed on gross value, not net of debt. If mortgages (and other debt) were deducted, it would raise far less revenue. Also, there are relatively few exemptions (homestead, enterprise zone exemptions are a small percent of the total).

https://www.usgovernmentrevenue.com/year_revenue_2019USrn_20rs1n_4043#usgs302

In 1640, Harvard’s founders wished to advance learning and perpetuate it to posterity. The U.S. now spends about seven percent of GDP on education to advance and perpetuate learning which arguably may or may not be the correct amount or the correct curricula.

So, how does one generation advance and perpetuate a nation to posterity? What exactly is it they should advance and perpetuate? What metrics gauge the effectiveness of the effort? To what extent does a one-billion-dollar estate advance and perpetuate a nation?

An estate tax, perhaps like a cigarette tax, has two goals, one of which is revenue.

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