If the Aim Is Tax Fairness, a Wealth Tax Won't Achieve It

Wealth tax proposals are popping up across the country, sparking economic debates about tax fairness. The question centers on whether very wealthy individuals are paying their fair share. Some policymakers suggest that a tax on the entire net worth of those individuals’ assets, not their income, is the right way to address the issue. After decades working on tax policy in the Senate, I am convinced it is not. 

Lawmakers in both chambers of Congress are pushing legislation to impose a new annual wealth tax on the country's billionaires. In California, a ballot initiative to do the same has already collected enough signatures to go before voters in November. Over the past year, some form of wealth tax has been introduced or seriously considered in at least eleven states. To be clear, when policymakers talk about wealth taxes, they’re not describing an increase to the top income tax bracket. The core idea of a wealth tax is to tax what people own, not just what they earn.

Here are just a few of the reasons why this is a bad idea:

Wealth taxes are impractical to implement. Our tax system has long been built around taxing realized income, the moment value is captured through a sale or transaction. That principle exists for good reason. Wealth taxes discard it, requiring the government to assess the value of everything a person owns every year, whether any of it has been sold or converted to cash.