How to Tax the Rich

Abstract

This article reviews the menu of major options for increasing tax liabilities for the richest Americans. It concludes that a number of options that have received considerable attention and support are not viable as a practical matter — looking at actual amounts of revenue raised and taking into account administrative considerations. This includes such options as taxing capital gains as ordinary income, which according to the official budget offices would raise little revenue due to the effect on realization behavior, and annual wealth taxes or broad mark-to-market accounting, which would be extraordinarily challenging to administer. The article then goes on to identify more viable options, the most promising of which may be taxing — at least partially — unrealized gains at death or gift, but also include a number of other policies like substantially expanding transfer taxes or increasing the tax rate on ordinary income.

Keywords: tax, wealth taxes, realization at death, step up in basis

JEL Classification: E62