Building an Economy that Works for Everyone

Is the Wealth Tax Just a Washington Thing?

Multiple states are also fighting to tax the ultra-wealthy. Why now?

Is the wealth tax just a Washington thing?

Though it may be difficult to remember now, there was a time when talking about a wealth tax or progressive tax structures wasn’t common. But way back in 2011, during the national Occupy Wall Street protests and ensuing conversations, activists brought these topics to the forefront. Almost overnight, the terms “the 99%” and “the top 1%” entered the collective lexicon. More than a decade later, we’re still using these phrases, experiencing these gaps – and calling for many of the same changes.

During the height of the COVID pandemic, families across the nation found themselves draining their savings. Even those who didn’t lose their jobs felt greater stress about the future than ever before. When we were “building back better” in 2021, corporations posted their highest profits since the 1950s. Meanwhile, regular working folks encountered skyrocketing food prices, supply chain interruptions, and shortages of food, household goods, and even medicine.

The pandemic was a wake-up call for many of us. Unfortunately, the rich and powerful are shielded from hearing that alarm. Thanks to a system that protects them and caters specifically to them, they’ve been able to keep hitting the snooze button for years.

It shouldn’t be a surprise that as inequality deepens, some lawmakers and advocates are looking for ways to address it. They’re looking to balance the books by examining both sides of the equation; spending more on public goods and services that make people’s lives better while taxing extreme wealth held in the hands of multi-millionaires and billionaires in order to increase revenue.

Why a Wealth Tax?

Turning to the richest people in the world isn’t punitive; it’s a step toward creating a tax structure that’s fair for all who pay into it. The world’s wealthiest hold most of their wealth in financial assets (corporate equity) traded on the stock market.  As a result, they’ve been the biggest beneficiaries of those corporate profits, amassing huge amounts of wealth on the exact same conditions that have left Americans squeezed. And this wealth – unlike most people’s equity, which is usually tied up in our homes – gets to grow tax free.

Not only is this unfair for the rest of us, this giant giveaway to the world’s wealthiest citizens is a huge loss for the public commons. Instead of tapping the untouched resources of those who have more wealth than they could spend in a lifetime, state legislators keep turning to poorer and poorer working people to fund the things we all need and rely on. By adjusting the levers on regressive taxes like the sales and property tax, rather than setting their sights on a wealth tax, they’re slowly robbing schools, social programs, programs for children and seniors, and our public servants.  

Thankfully, some Washington state lawmakers are making moves away from this dysfunctional regressive model. Rather than trying the same thing over and over and hoping for different results, they’re working to pass a state wealth tax.

Who Pays a Wealth Tax?

This 1 % tax on the stocks and bonds (financial assets) would only be applied to multi-millionaires and billionaires – those with more than $250 million in financial assets. The Department of Revenue estimates only about 700 Washingtonians would be wealthy enough to pay into this tax, and these are some of the wealthiest people in the world. The result would be enormous sums of much-needed revenue without further burdening the vast majority of Washington workers.

And while it might seem radical to some, it’s really not. We are not alone – it seems that everybody’s waking up to the need to try something new.

David Gamage, Professor of Law Chair in Tax Law at Indiana University and scholar of tax law and policy, testifying in support of the HB 1473, to implement a state wealth tax in Washington, during the 2023 legislative session

State Level Momentum

Currently, legislators and advocates in eight different states are actively pursuing state level wealth taxes. The specifics of the proposals vary; they’re designed with each state’s population of wealthy denizens, constitutional restraints, and other factors taken into account. But the broad idea is the same. To set our economy on the right track, we must stop carving the ultra-wealthy out of our tax base.

On January 19, 2023, the members of a nationwide coalition dropped their respective legislation in tandem. The proposals span different policy concepts, including:

  • Taxing the value of financial assets (aka “unrealized gains” proposals) in Washington and California
  • Taxing the sale of financial assets (aka “capital gains” proposals) in Hawaii, Connecticut, New York and Maryland
  • Taxing intergenerational wealth transfers (aka “estate tax” proposals) in Hawaii, New York, Maryland and Minnesota
  • Taxing just the value that has accrued on assets since they were bought (aka “mark-to-market” taxes) in New York and Illinois

In some places, this tactic has been successful. A Massachusetts tax on the wealthy, structured as a higher income tax rate on earnings exceeding $1 million, passed in November of 2022. It’s has gained substantial national attention for the recipient of its funding: Free lunches for public school students.

There’s Federal Movement, Too

The push for state-level tax reform is largely due to slow movement on the federal level. But since the beginning of the COVID-19 pandemic, federal legislators have been forced to consider the impact of sheltering billionaires from our tax structure. Several lawmakers have now introduced different forms of wealth taxes in Congress.

Senator Bernie Sanders was ahead of the pack when he introduced a tax on extreme wealth in 2019. In 2021, Senator Elizabeth Warren and Representative Pramila Jayapal introduced a similar wealth tax on households worth more than $50 million. In 2022, Representative Jamaal Bowman introduced “Babies over Billionaires.” This legislation would tax unrealized gains on publicly traded and privately held financial assets for those with $100 million more in taxable wealth. Even President Biden included a minimum income tax for the ultra-wealthy. His plan includes unrealized gains in the calculation of income.

Unfortunately, these haven’t moved past the planning stage. Conservatives in Congress, whose constituents tend to favor policies that favor the ultra-wealthy, are unlikely to get on board.

European Wealth Tax Precedents

This isn’t just a United States solution, either. Switzerland, Spain, and Norway all have wealth taxes. These taxes help support public needs from childcare to transit to safety. Some are relatively new, but not all. The Swiss have taxed the wealthy since the early 1800s.

Unsurprisingly, there have been a number of reports claiming that these taxes have caused the ultra-rich to flee. However, these “warnings” leave out a key component. Residents tend to move to countries with equally, if not higher, tax rates for the wealthy. There is still no true correlation between higher taxes and wealth flight.

These taxes have, contrary to negative messaging, been widely successful, according to David Gamage, an Indiana University professor and scholar of tax law and policy. During testimony in the Washington State Legislature, Gamage noted that the Swiss tax is viewed as a “great success.” He also called Spain’s wealth tax “so successful and popular that it was made permanent and its rates raised.”

We also have clear data on nations that no longer tax the ultra-wealthy – and those whose tax experiments that didn’t go well. In 1990, nine European countries had wealth taxes on the books, but have since repealed them. It’s important to note, though, that European wealth taxes were very different than those introduced in the states. These European wealth taxes actually taxed middle-class wealth and featured many exemptions, making it easier for the wealthy to avoid paying what they owed.

We Don’t Need to Look Far for Precedent

By looking to other states and nations, we can and should find guidance in our own plans and policy. There are important lessons to apply to designing and implementing effective wealth taxes. American policies should aim to tax the forms of extreme wealth common among ultra-millionaires and billionaires. Additionally, our tax plans should be structured to avoid potential loopholes that professional wealth advisors can exploit. And fortunately, we have models that can help us strike this balance.

The Occupy movement decried the overwhelming influence of giant corporations in political life and the inequality between the rich (the 1%) and everybody else (the 99%) influence which those same wealthy entities still hold. If anything, we’ve seen steps backward since Occupy.

Opponents may say that these changes, like creating a wealth tax, are untested or unprecedented, but they’re incorrect. Not only is there precedent, but more and more,  states are looking to this solution as a way to shore up their local economies and build a better future.

 

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