Not so Fast: The Hidden Difficulties of Taxing Wealth

NOMOS Wealth Volume, FORTHCOMING

San Diego Legal Studies Paper No. 16-213

39 Pages Posted: 15 Mar 2016

Date Written: March 14, 2016

Abstract

As an antidote to increasing inequality, policymakers and academics frequently call for heavier taxes on the wealthy. To those outside the tax academy, proposals such as increasing marginal rates, implementing a wealth tax, or strengthening the estate tax likely sound like variations on the same theme. Many discussions of using the tax system to fight inequality therefore ignore differences among tax instruments. As this Essay shows, using the tax system to fight inequality requires careful consideration of both normative and practical concerns. Certain goals (for example, the concern that wealth concentrations harm the political and economic systems) suggest taxing wealth itself via an annual wealth tax as an ideal solution. Not only would such a tax be hobbled by administrative and valuation concerns, however, it is likely unconstitutional. The optimal second-best solution would be to tax capital gains at death, thereby closing the loophole that allows untaxed appreciation at death forever to escape taxation. In contrast, other goals (such as equality of opportunity) counsel taxing wealth transfers as an ideal matter. Best reflecting that goal is an accessions tax that taxes transferees on the cumulative amount of gifts and bequests received. One unintended consequence of wealth transfer taxes, however, is that they likely spur families to engage in greater consumption, much of which may exacerbate inequality of opportunity. This consequence means that taxation must also be coupled with greater leveling up efforts that provide children born to less-financially advantaged families with opportunities to develop their talents and abilities.

Keywords: tax policy, inequality, distributive justice, political philosophy, wealth taxation, equality of opportunity, wealth, wealth transfer taxes, estate taxes, inheritance taxes

JEL Classification: D31, D63,E61, H23, H20, K34

Suggested Citation

Fleischer, Miranda Perry, Not so Fast: The Hidden Difficulties of Taxing Wealth (March 14, 2016). NOMOS Wealth Volume, FORTHCOMING; San Diego Legal Studies Paper No. 16-213. Available at SSRN: https://ssrn.com/abstract=2747697

Miranda Perry Fleischer (Contact Author)

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States
(619) 260-2319 (Phone)

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