Taking Wealth Taxes More Seriously

Abstract:     
This paper is a preliminary exploration of a wealth tax. The initial question that is posed is whether it is conceivable that the United States could impose a broad- based, flat wealth tax as a substitute for all current Federal income taxes (individual and corporate) as well as the estate and gift taxes. If we look only at assets listed by the Federal Reserve in its national Balance Sheets, we find that tax rates would have to be too high to replace Federal taxes with a wealth tax - under many assumptions, the tax rate would be in excess of the riskless rate of return on assets, probably too high a rate for a politically viable tax structure. However, if human capital is included in the calculation under reasonable assumptions, the tax rate needed for the wealth tax drops below 2%, perhaps as low as 1.5%. This seems like a politically viable level for a wealth tax. In the future, I hope to do further work to show the distributional effects of such a tax, and its potential economic consequences. In the light of the findings on those issues, I also hope to discuss the consequences of such a fundamental shift in our tax system on the system's equitable foundations.

JEL Classification: H20, K34

working papers series