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A brash political candidate forms a presidential exploratory committee. Almost immediately, the candidate announces a controversial policy: a wealth tax on the ultrarich.

Catherine Rampell mug

Catherine Rampell

Just 1½ pages long, the proposal is met with some cheers but lots of jeers — about its constitutionality, feasibility, fairness. Right-wing pundits bemoan the appeal to class warfare.

That candidate?

Donald Trump, in 1999, pursuing the Reform Party nomination.

Everything old is new again.

Last week, Sen. Elizabeth Warren, D-Mass., now exploring a presidential run, proposed her own wealth tax. Warren’s proposal is constructed differently than Trump’s was — his was a one-time levy, hers is annual — but the reception has been similar.

The case for such a tax has only grown stronger over time, even if the way Warren goes about it could stand to be improved.

Over several decades, U.S. policies have facilitated a systematic upward redistribution of wealth.

Congress has slashed taxes overall, but especially on the rich; reduced or eliminated brackets that applied only to the tippy-top income percentiles, making the tax code less progressive at the top; neutered the estate tax; cut rates on long-term capital gains; added “Inception”-like loopholes within loopholes, which disproportionately benefit taxpayers with the sophistication and resources to game the system; and gutted the Internal Revenue Service, which catches these tax dodgers.

All of these deliberate choices helped the richest households to accumulate more wealth and make that wealth more persistent across generations.

They have also contributed to the government’s growing revenue shortfall. If you want to patch deficits, go where the money is — increasingly, at the very top.

We should think of a wealth tax as a way to correct the mistakes of the past.

It’s hard to unwind 40 years of bad tax policy by jacking up marginal rates on ordinary income alone. The Trump family makes a good poster child for why: Adding a new 70 percent marginal tax rate on income above $10 million, for instance, would barely dent the accumulated wealth passed down — much of it untaxed — from Fred Trump to Donald to Ivanka and subsequent generations.

There are some problems with a straightforward wealth tax, however.

For starters, its constitutionality is unclear, given the requirement that “direct” taxes be apportioned among the states. Some legal scholars argue that a wealth tax would hold up to a constitutional challenge. But with the current Supreme Court, that’s far from guaranteed.

There are other hitches, too, some specific to Warren’s (relatively barebones) formulation: a 2 percent annual tax on a household’s wealth above $50 million, with the rate rising to 3 percent on any wealth above $1 billion. Some obvious ways to game that $50 million threshold trigger include strategic divorce, within-family transfers and tricks for deflating valuations.

Plus, annually enforcing such a system would be an administrative nightmare for the government — and a feast for accountants, tax attorneys and the like. As tax practitioners who’ve appraised large estates could tell you, mark-to-market valuations of highly illiquid assets (closely held businesses, rare works of art) are easily manipulated.

Warren proposes handling this by beefing up tax enforcement, through greater IRS funding, for example. That’s something we should absolutely do anyway, but it’s not clear manpower alone would be enough.

These problems are not insurmountable, however. As tax experts such as University of Chicago law professor Daniel Hemel have suggested, you could reconfigure parts of the income tax to create something that effectively operates like Warren’s wealth tax, except with fewer constitutional or administrative headaches.

Congress could set the tax rate on long-term capital gains to match that of ordinary income. It could shore up the estate tax and repeal the “stepped-up basis” that allows unrealized capital gains to go untaxed when a person dies.

Raising the capital-gains rate might encourage rich people to delay sales of assets. But Congress could claw back these deferral benefits, through something called a retrospective wealth tax. It’s a bit complicated, but it’s like charging interest for the years you held an asset before selling it (or dying).

Nobel laureate William Vickrey proposed a version of this 80 years ago, and it has since been tweaked by Alan Auerbach and David Bradford. Despite the name, such a tax could still be administered through the income-tax system, reducing the risk of constitutional challenge.

Other possible iterations are worth considering, too. Let’s hope Warren’s proposal produces at least a vigorous, good-faith debate about the best and fairest ways to redress the policy errors of past generations.

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Catherine Rampell is a columnist for The Washington Post.


(17) comments


Many of today"s Humpers will freely lament : "whats wrong with being rich"???
In other words : the rich aren"t getting richer and the poor are not getting poorer?
Perhaps the massive tax cut Trump gave to his wealthy cronies, can help them see how the "Middle Class" has succumbed.


Would you pass at the chance to be rich right now? Just burn that Powerball jackpot ticket?


Well, let's assume you were as rich as Donald Trump claims to be, worth about $10 billion. And let's assume you are retired now, and simply living off the interest of investments. And let's assume that you are getting a relatively modest five percent from those investments. Right now, with the present high end tax, you would be making about $42.5 million a year after taxes. Do you think people would be distressed if you were made to pay three times that in taxes, garnering you a measly $28 million or so? Do you think anybody could get by on that much of a reduced income?

Powerball, which I play, and Megamillions, which I also play, are insidious in that they probably convince thread bare wage earners that tax rates for the rich should not be raised. So many people are convinced they are going to win a big jackpot that they don't want to have a larger tax bite out of it when they win. Boohoo.

Meanwhile, we have a crashing middle class because of tax policy as it stands, allowing the top one percent become impossibly rich, usually not due to inherent skills or intelligence, but because they were in the right place at the right time and have perhaps been ruthless in their climb into the upper reaches of wealth. It takes the entire national society and its efforts to lay the groundwork for such wealth, so there is a responsibility to share the bounty of the society in a way that it serves every member of it. There is nothing unfair or immoral about it, and certainly nothing unconstitutional about it so long as the rules are laid out by duly constituted lawmakers.

What is unfair and immoral is to see the growing gap between the wealthiest one percent and the rest of society, and the conspicuously irrational consumption of the very rich, like the billionaire spending nearly a quarter of a billion dollars for an immense NYC penthouse he plans to use only occasionally, while tens of thousands of people wander homeless in that city's streets.


Great points, very fair and reasonable. Can't really think of a logical argument. I think it will be near impossible to implement. This country is and has always been controlled by the extremely wealthy.


On a personal level, I really don't care about a wealth tax. It will not be a burden I'll need to carry in my lifetime. It does make me a little itchy, due to the encroachment of liberty and personal property. The ultra wealthy usually are very smart or pay very smart people to find and create loopholes. I don't think the IRS could keep up, even if it doubled in size.


If you're like many American working people, you'll find that you either owe the government money this year or will be getting a smaller refund. That's the impact of the republican "tax cut" on working people.


"It's hard to unwind 40 years of bad tax policy by jacking up marginal rates on ordinary income alone." All I know is in the last 50 years of trickle down economics, it has turned millionaires into billionaires, and the working class into the working poor. When will the average Americans wake up and quit catering to the super rich, while their meager wages are being slashed.


Too funny ...way,way,way,too funny., Cass2 is exceptionally spot on !!! California has a higher GNP than many COUNTRIES., in the whole wide world !!! The hordes of well educated young folks leaving Wisconsin, in droves...guess where they"re going dude? CA.,TX.,CO.,AZ.,..California has an econ, any state would kill to have.
Zerokok forgot to study for the test?
No surprise.


Won't argue that California's economy is massive. Helps to have 30 million people, Hollywood, tech giants, etc. But I will say, the side effects of all that are staggering. Homeless capital of the world, wage gap capital of the world, crime capital, traffic capital, smog capital of US, etc. All the "evil" that liberals associate with money and greed can be found in CA like nowhere else. I've probably spent a year of my life working in So Cal, recently. There's no place I least enjoy being.

Rick Czeczok

Over taxation of any group, would set up the worst precedent for all Americans. Overtax the mega rich and they will leave by the hoards. Don't believe me, look at California and how many are leaving that state and taking their companies with them.


Check your history, comrade. And if the situation in California is so bad, why is it the biggest economic engine in the US? You're full of baloney.


Companies are leaving CA in high numbers. Lots of mid size, manufacturing, agriculture. Has a minimal impact because of the growth of the tech sector but unless you are filthy rich, can't survive the regulations and climate in CA. I know first hand. TX is a fantastic place to do business and they are rapidly improving all economic factors, and therefore, demographic success.


"...but unless you are filthy rich, can't survive the regulations and climate in CA...." Funny, millions of people who are NOT super rich seem to be surviving there every day. And Texas, which is allegedly crawling with illegal and "dangerous" migrants, sees its economic fortunes rise and fall with the price of gas at the pump. It also has some of the worst environmental problems of our country.


Businesses, genius, businesses. Pay attention.

You are correct about TX, growing problem with immigrants and suspended assimilation. But that aside, business is booming.


So where are those millions of people working, if not for businesses, genius? You're full of baloney, but at least you like to share.


Ricky, so glad to see that you have not abandoned us altogether, though you have been lying low lately. Because your lies and misinformation get called out too much. Here you go again, with more ignorance. Tell me where the mega rich are running to. Who are they? Name one. For that matter, when the top tax rates were more than 80 percent in the Eisenhower administration, tell us how the mega rich ran for other nations to avoid the taxes. Tell us who they were.


There are occasional stories about the poor, disenfranchised, white men of Orange County who threaten to decamp for Texas every time they are asked to pay their fair share. I say "let them leave!"

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