Taxing wealth

The Problem 

The United States has high levels of income and wealth inequality, in part because of shortcomings in how we tax concentrated income and wealth. Many of these shortcomings derive from the tax code’s intense incentives to defer realization of capital income through features like preferential tax rates on long-term capital gains and dividends, stepped-up basis of assets at death, and taxpayers’ ability to defer tax on investment gains without interest. Wealth taxation is one potential solution, but it presents implementation challenges that must be carefully addressed. 

The Proposal 

To raise revenue and more effectively tax income from wealth, Greg Leiserson discusses four potential approaches to taxing wealth:  

1. Approach 1: a 2 percent annual wealth tax above $25 million ($12.5 million for individual filers). 
2. Approach 2: a 2 percent annual wealth tax with realization-based taxation of non-traded assets for taxpayers with more than $25 million ($12.5 million for individual filers). 
3. Approach 3: accrual taxation of investment income at ordinary tax rates for taxpayers with more than $16.5 million in gross assets ($8.25 million for individual filers). 
4. Approach 4: accrual taxation at ordinary tax rates with realization-based taxation of non-traded assets for those with more than $16.5 million in gross assets ($8.25 million for individual filers).