Beyond the Wealth Tax

60 Pages Posted: 16 Apr 2024 Last revised: 2 May 2024

See all articles by Charles Delmotte

Charles Delmotte

Michigan State University College of Law; NYU School of Law

Date Written: March 28, 2024


The increased emphasis on economic equality has led to a consensus on the desirability of a federal wealth tax. Prominent tax scholars and economists advocate imposing a 1% or 2% levy on households with assets exceeding a net worth of $50 million. A wealth tax attempts to tax capital owners on the market value of their assets and businesses in the absence of transactions that determine such value. The proposal thus rests upon a dominant underlying assumption: that determining the market value of assets worth trillions of dollars is a surmountable and administrable task. Yet in reality, wealth taxes fail to satisfy the goals of tax policy, namely administrability, efficiency, and equity.

While the incorporation of distributive considerations into tax law is commendable, the existing literature lacks a comprehensive theory on wealth creation and the valuation of assets. This Article introduces a new theory—the market as a discovery process—to fill this gap. The wealth creation process takes place against the backdrop of a knowledge problem, and the outcomes of capital investments and specific business ventures are often highly unpredictable. This theory shows that the market value of many assets and business ventures is discoverable through transactions. In the absence of such a realization event, both public and private entities encounter this knowledge problem: authorities lack information to ascertain the market value of assets and calculate the wealth tax base. As a result of this valuation issue, wealth taxes fail the administrability criterion. Additionally, the wealth tax base is vulnerable to litigation and arbitrariness and taxing it won’t generate the desired equitable outcome. Regarding economic efficiency, taxing assets according to their general market value discourages innovative entrepreneurship related to those assets. This, in turn, limits the potential for the creation of new wealth.

While wealth taxes fail all three criteria for tax policy, a pragmatic alternative that enhances the equity of the tax system involves taxing unrealized gains at the time of death. Such a deemed realization tax is administratively more feasible as it involves a one-time levy that can build on the valuations generated during transfers at death. This measure also enables the elimination of the capital gains preference, thereby taxing labor and capital income under a unified rate schedule. These combined policies increase taxes on the wealthy while meeting the requirements of administrability and economic efficiency.

Keywords: Wealth Taxation, Economic Inequality, Tax Policy

Suggested Citation

Delmotte, Charles, Beyond the Wealth Tax (March 28, 2024). Alabama Law Review, Vol. 76 (Forthcoming), Available at SSRN:

Charles Delmotte (Contact Author)

Michigan State University College of Law ( email )

East Lansing
United States

NYU School of Law ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

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