A HOST of public opinion data confirms that Americans favor higher taxes on the wealthy. It would seem that taxing the rich is so popular that even the rich are for it, or at least some of them. An open letter published June 24 by 19 very wealthy people, including Abigail Disney and George Soros, declared that “America has a moral, ethical and economic responsibility to tax our wealth more.” Billionaire Eli Broad chimed in with a pro-wealth-tax New York Times op-ed. Certainly their self-abnegating spirit is consistent with the policy tendency that Democratic candidates expressed during their first debates; and the letter spoke favorably of a direct tax on wealth similar to the one Sen. Elizabeth Warren (D-Mass.) has proposed, which would put a 2 percent levy on assets above a $50 million threshold and 3 percent on assets over $1 billion.
We couldn’t agree more with the letter writers that the United States needs to raise more federal revenue and that “the next dollar of new tax revenue should come from the most financially fortunate, not from middle-income and lower-income Americans.” Undeniably, too, the 2017 tax law that President Trump and a Republican Congress enacted showered billions of dollars worth of tax relief on upper-income people and businesses. Incredibly, news reports indicate the Trump administration is considering executive action to create yet another tax reduction that primarily benefits the rich — indexing capital gains to inflation. This would fly in the face of public opinion and, more importantly, could cost the treasury between $10 billion and $20 billion per year, according to Leonard E. Burman of the Tax Policy Center.
Unlike the open letter’s authors and Ms. Warren, however, we are not convinced that a wealth tax is the optimal means of raising taxes on those who can afford to pay more. In addition to a likely constitutional challenge, the measure would encounter implementation problems — especially the consistent valuation of assets ranging from land to rare art — similar to those that have caused most European nations that tried a wealth tax to abandon it. Indeed, it’s all too likely that a wealth tax would bring in less revenue than advocates anticipate, in part because millionaires can afford the best accountants and lawyers. What’s more, a wealth tax of the kind Ms. Warren proposes would not distinguish between wealth accumulated through enterprise and innovation, which is socially productive, and wealth gained through inheritance or rent-seeking, which is not.
A better approach would be to repeal those provisions of the 2017 tax law that restored favored treatment to large estates; to reduce the favorable treatment of capital gains in general; and to eliminate the huge break for profits on the sale of stock by people who inherit it from rich benefactors. These measures are all clearly constitutional, all readily administrable by the existing Internal Revenue Service apparatus — and all well-calculated to raise substantial amounts from the top 1 percent, or less, of the income scale. A wealth tax is certainly a bold and spectacular proposal; what the country needs most, however, are effective ones.