Recent efforts in eight states to impose new taxes on the wealthy may be unlikely to pass but are reigniting a debate over the effectiveness of a wealth tax — which had been losing popularity around the globe.
“There is a level of interest in these types of taxes as more research comes out showing how many billionaires don’t pay a lot or don’t pay any income tax,” said Sam Waxman, a senior policy analyst at the progressive Center on Budget and Policy Priorities.
THE HIGHLIGHTS
- Proposals in eight states aim to raise taxes on the wealthy.
- In 1990, 12 countries in Europe had wealth taxes; only three have them now.
- Some European wealth taxes were ineffective at raising revenue, according to multiple studies.
- The U.S. proposals have few sponsors and are not expected to pass.
In the past year, tax avoidance by wealthy individuals has made headlines in reporting exposés by ProPublica and other news outlets, prompting calls to close myriad loopholes and raise taxes on wealthy Americans.
In the same week that the state-level legislation was introduced, more than 200 millionaires released a petition calling for increasing taxes on the wealthy. Prominent among the signatories were actor Mark Ruffalo, Disney heiress Abigail Disney, billionaire Cynda Collins Arsenault and Men’s Wearhouse founder George Zimmer.
And at least 12 U.S. billionaires, including Warren Buffett and Bill Gates, have pushed for higher taxes on the wealthy at the federal level.
A slim majority of Americans polled by Gallup 2022 agreed that the government should “redistribute wealth by heavy taxes on the rich” — and the number of respondents in the top third of earners who agreed with that sentiment has grown in the past 15 years.
The surge in interest represents a reversal of a global trend, with wealth taxes in decline until the late 2010s. Although a wealth tax has never been imposed anywhere in the United States, it has been popular in Europe and South America. Twelve European countries had them in 1990, but all except three discarded them over the past few decades.
That was part of a trend that can be viewed “as part of a more general trend towards lowering tax rates on top income-earners and capital,” the Organisation for Economic Co-operation and Development noted in a report.
In the past few years, the landscape has shifted. Several European countries have recently added a kind of wealth tax that pertains only to certain assets, such as real estate in France and investments in securities accounts in Belgium. In South America, Argentina and Colombia have wealth taxes, with the latter having imposed one in 2019.
No countries on other continents currently have wealth taxes.
Some earlier European wealth taxes were ineffective at raising net revenue, according to multiple studies. Countries often created large exceptions to the classes of assets that would be taxed, exempting farms or primary residences or certain objects of cultural significance, such as France’s exemption for investments in wine and brandy. The result was that the revenue gain was relatively small compared with initial predictions.
Capital flight also reduced revenue from wealth taxes in addition to reducing the opportunity for taxing the income and capital gains that could have been applied to activity with those funds. In France, the 3.5 billion euros raised by a wealth tax from 1980 to 2007 were estimated to be a net loss, as other potential revenue lost from the impact of the tax was double that amount.
The European countries that have kept their original wealth tax have tended to avoid the approach of exempting various asset classes and in doing so have had greater success. In a study by the International Monetary Fund, Norway’s model was found to have positive effects.