Recently, Senator Ron Wyden, the top Democrat on the Senate Finance Committee, proposed such a reform. He wants to get rid of the “two tax codes” for workers and investors. He proposes the government create “one tax code” by taxing investment income at the same rate as labor income and taxing investment gains annually whether or not they’re sold. Julian Castro and Senator Cory Booker, each running for president, have proposed similar tax policies.
Wyden proposes an “anti-deferral” tax system in which people with over a million dollars in annual income or ten million in net worth over three consecutive years would lose the ability to defer tax payments on publicly listed assets, like stocks and bonds. Harder-to-value private assets, like artwork, real estate, and ownership shares of private businesses, would face a retroactive “deferral charge” when they’re sold. He estimates the tax would raise between $1.5 to $2 trillion over ten years, and he wants to use the money to strengthen the Social Security program.
Proposals for accrual taxes face similar criticisms to the wealth tax. The policy would require, for instance, significant resources to administer. It could distort saving and investment decisions and have unintended consequences for the broader economy. And while proposals on the table include measures to avoid such problems, it’s possible the tax could be hard on some taxpayers who look rich on paper but are in fact short on the cash needed to pay the tax.