Quantitative Analysis of a Wealth Tax for the United States: Exclusion and Expenditures

Abstract

We use an overlapping generations model with endogenous avoidance and rich tax detail to quantitatively analyze two major issues in the design of a wealth tax for the United States: the provision of exclusions for certain housing and business equity, and the range of government expenditure options allowed for by additional revenues. First, we find that while the provision of an exclusion for owner-occupied housing results in quantitatively insignificant macroeconomic and budgetary effects, the provision of an exclusion for privately-held noncorporate business equity results in a shift of productive activity towards that sector and undermines the revenue-raising potential of the tax. Second, we find that the macroeconomic effects of a given wealth tax regime can vary from contractionary to expansionary depending on the type of expenditures that are assumed to be financed by the additional revenues.

Keywords: wealth tax, avoidance, budgetary feedback