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Recently liberals and conservatives alike have floated returning to the high marginal income tax rates of the mid 20th century, as a method to help reduce inequality in the United States, among other goals. Similarly, some have also floated ideas about taxing underlying wealth (net worth) instead of (or in addition to) annual income.

Ann Coulter supporting high income taxes proposed by Rep. Alexandria Ocasio-Cortez

Slate supporting a wealth tax

Tucker Carlson on concerns about inequality

My question: How could such a "wealth tax" be implemented to minimize evasion and non-compliance, ideally without also creating a massive compliance headache for the IRS or whoever administers the wealth tax? Obviously rich people would attempt to circumvent such taxes by trying to "hide" their assets, shield them overseas, etc., so I'm wondering how the law's details could be structured to stymie evasion as much as possible.

Assume for this discussion that a wealth tax looks something like:

Pay 1% on marginal net worth over $10M. For example, a $15M net worth would be taxed annually at ($10M * 0%)+($5M * 1%) = $50,000 / year.

I specifically am NOT asking about the merits or downsides of wealth taxes, but rather how they could be implemented most effectively from an enforcement perspective.

Edit: To make this more specific and less opinion-based, let's focus on how other countries have structured wealth taxes. What have they done? Is there any reliable reporting on evasion or compliance?

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    @user4012 Yeah I was really asking for some ideas on wonky tax policy solutions for this problem, or legal policies that could be implemented. Since part of SE Politics is about policy debate, I felt this was an acceptable forum. Plus as you say, there didn't seem to be any SE sites that were more fitting. – jaypops96 Jan 21 '19 at 14:42
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    @JJJ So pick any number you want to replace that 0.1% - I wasn't suggesting that be the ultimate tax rate, I was just highlighting the tax structure I'm proposing, for question clarity. Pretend it's 10% on all wealth over $10M - that would really give rich people an incentive to evade. I edited the question to make it a 1% marginal rate. – jaypops96 Jan 21 '19 at 14:44
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    Also, in defense of this question, and in hopes it can be reopened, I don't understand why any part of my question would generate excessively "opinion-based" answers. In fact, I specifically state I'm not looking for a debate on the merits of a wealth tax, which seems to be the angle of my question that would invite a slew of partisan opinions. Part of the motivation for my question was to understand whether a wealth tax would be a viable economic approach, which would support discussion about whether it would be a good political move. – jaypops96 Jan 21 '19 at 14:56
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    Given that there are both countries that have implemented wealth taxes and tried to implement effective ones and there academic research on policy, I see no reason why a policy question like this shouldn't discussed on this SE. – Christian Jan 21 '19 at 17:31
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    @shoover I suspect that a wealth tax will be disliked by anyone with big bucks in savings, I don't think there's any getting around that. But if it kicks in high enough (e.g. wealth over $10M), it shouldn't affect retirees well-being. And it might make sense for a wealth tax to be layered on top of a progressive income tax structure as well, if the goal was to bring down inequality. – jaypops96 Jan 23 '19 at 0:56
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Henry George advocated for a Land Value Tax which assesses the undeveloped value of a property and taxes the person who owns the property an assessed tax. Specifically, it is the unimproved land that is taxed, not any improvement to the land (such as a parking lot, a mall, a house, a farm, ect) or what is the value of the property assuming it was undeveloped from the start.

This type of tax is considered to be progressive as the poorest of the citizens never own land and is likely the only economic efficient tax as it encourages improvement of the land in order to pay the tax. If you have an empty lot in the city, you still owe a similar value to your neighbors who have an office tower and a trendy apartment building on either side. Thus, it's to your benefit to develop something that will profit the land.

It's also one of the few commodities that cannot be stored overseas... it's a fixed location and any attempt to put it offshore will be noticed pretty quickly, thus people who invest in land will be unable to hide their true worth as far as taxing purposes are concerned.

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  • not sure why you are getting downvoted. maybe someone thought that was opinion-based? Interesting citation though, I looked up Henry George, seems like he influenced the Progressive era in the early 1900s. How would one structure such a tax to not hit the middle class? exempt the first X dollars worth of property? Certainly many localities already have property taxes. – jaypops96 Jan 23 '19 at 21:39
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    @jaypops96 - The difference is that property taxes are based on the current use of the property, and will change if there are changes to it, whereas the land value tax is the same no matter to what use it's being put. As a progressive tax, it would hit the middle class, but only in proportion to the amount of land they actually own. The best way to handle it would probably to be to reduce other taxes to compensate, but I'm not an economist. – Bobson Jan 28 '19 at 18:49
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    @Bobson LVT was envisioned to be the only tax used though it would get complicate. If I were to build a factory on a plot of land, the desirability of the land around it would go down... if there were people living there as neighbors, they would have a lower tax because the value of the property falls. Other models raise the value based on extracting resources and their replace-ability (i.e. a Mine decreases the value of that land, thus it's product is assessed in the LVT and to a higher degree than timber company that replants it's trees.). – hszmv Jan 28 '19 at 20:47
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    Would this actually count as wealth tax, though, if its basis is not even the actual value of a single type of property? – cbeleites unhappy with SX Feb 14 at 18:55
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    @hszmv: of course it is indicative. But the background of my comment is that I'm in Germany where we have a ruling of the federal constitutional court that says a wealth tax must tax all forms of wealth equally, and also if the value of a property is taxed, the evaluation procedure cannot be too outdated and/or too unequal across the country (in consequence, collection of wealth tax was suspended and the property tax on land ownership/real estate is undergoing a reform). We could probably have a square-metre-tax, though. – cbeleites unhappy with SX Feb 19 at 23:09
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My proposal would be a wealth-added tax. Instead of relying on people to report their assets, tax the underlying assets directly. So if there is a house somewhere, send the owner a bill. This works even if the owner is corporate, as the tax is due on the asset, not the owner. No payment? Take and sell the house. This is how property taxes already work.

More importantly, a wealth-added tax on a stock would be collected at the brokerage level. So the brokerage would report the asset to the IRS. They wouldn't need to rely on the individual reporting it.

Each level would be able to deduct taxes paid at previous levels. For example, if a corporation owns a rental property. Tax will be paid on the rental property. That basis will then be deducted from the tax paid on the corporation's stock. Part of why this works is that the higher layers will want the lower layers to report the amount paid. If it only applies to people with wealth greater than $10 million, then many people will get the tax rebated. So they will want accurate reporting to get their rebate.

If someone owns a foreign property and keeps the income in the foreign country, they may evade the tax. But if they own stock in a foreign company that owns assets in the domestic country, then the tax will still be assessed on the domestic assets. This kind of tax will work better on large countries. This is because it is difficult to simply not do business in a large country. The loss of revenue is greater than the cost of the tax. I.e. paying the tax in the US is better than not paying the tax in a foreign country with a lower net return on investment.

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    This sounds similar in concept to a value-added-tax, which is currently extremely common throughout the world (EU, Australia, China, Canada, and many others). Can you explain the difference? Do any countries use a wealth-added-tax rather than a VAT? investopedia.com/terms/v/valueaddedtax.asp – jaypops96 Jan 24 '19 at 11:38
  • and keeps the income in the foreign country, they may evade the tax Isn't America way past that? The IRS already works with many foreign financial institutions to get Americans abroad to pay their taxes. With headlines like Despite Spending Nearly $380 Million, the Internal Revenue Service Is Still Not Prepared to Enforce Compliance With the Foreign Account Tax Compliance Act you know they're serious. – JJ for Transparency and Monica Jan 25 '19 at 10:17
  • @jaypops96 Indeed it does sound similar to that. But for wealth rather than production. – user253751 Feb 14 at 12:43
  • "If someone owns a foreign property and keeps the income in the foreign country, they may evade the tax." -> that would be a matter for tax a treaty. And my guess would be that the country where that property is would get the right to taxation, at least that's how international income and VAT is usually handled. Then, the domestic tax resident would pay wealth tax for their foreign property to the foreign country and foreign owners of domestic property would pay wealth [property] tax at the country where the property is. Unless, of course, one decides for double taxation in this case. – cbeleites unhappy with SX Feb 14 at 17:09
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    Another crucial difference is that VAT rarely* has difficulty in establishing the taxable amount, because there is a price for the goods or services sold and that's the basis for taxation. Whereas as I understand the discussion, establishing the basis for wealth tax in an efficient manner is one of the main difficulties. (I may add that here in Germany we have a federal constitutional court ruling that states that a wealth tax must tax all forms of wealth equally.) Surrogtes (taxes on particular types of property) are much easier to implement. – cbeleites unhappy with SX Feb 14 at 18:12
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It can't be implemented effectively. Property taxes on cars and homes/land can be enforced because land and cars can't really be hidden due to strict registration requirements and deed record-keeping along with the fact that you can't really move them out of the country or else they'll be unusable to you. All that would happen if you implemented a wealth tax is people would take money out of their savings accounts and put it in foreign accounts that don't have to report the values. It will basically become like the FBAR, only worse because with the FBAR there isn't even any tax and still enforcement is meh.

Income is much easier to track and tax as a whole because one group of people wants to get deductions and the other wants to reduce their income, so if one party reports too great of a 1099 deduction to get a bigger deduction, the other party is going to tell on them by saying they didn't get all that 1099 income. So people end up policing each other. It works. Mostly.

If you want to collect money from the rich, the first answer is obviously taxing gifts and estates more aggressively. Presently the tax rates are pitiful and the exclusions are extremely high so most of it never gets taxed. It's also totally unearned and undeserved income, so hardly any reason to argue morally against it (unlike taxing earned income). Plenty of million dollar homes out there being "sold" to some trust fund kid for "$1."

You want to collect taxes from the wealthy? That's the answer.

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  • Income is still hard to track. "All that would happen if you implemented an income tax is that everyone would get paid in cash." Wealth is even harder though. – user253751 Feb 14 at 12:44
  • I'm in Germany and I'm not so sure nowadays about the tax on cars: the EU allows free movement of all citizens throughout the EU. So we have lots of foreign cars around, e.g. of cititzens of other EU countries that work here for a time (or for longer). The law is that after a few months the car would need be registered in its new "home country". But those months restart counting from zero whenever the car leaves and reenters a country. And we've anyways abolished the need to get passports stamped etc. – cbeleites unhappy with SX Feb 14 at 17:55
  • user253751 I'm not sure you get it. Paying someone in cash doesn't make the transaction a one-party transaction. What's forcing most of the income-reporting is not the bank transaction, but the payer wanting to get the deduction, which often means info reporting (W-2). So if I'm the employer, I want to deduct my payment to you, the employee, whether I pay you in cash or check. On the other hand, HAVING wealth is mostly a matter of one party. So if I have it in cash, it really is more difficult to detect. They'd have to raid my house and find it, not just ask the bank for my bank statement. – primuspaul Feb 15 at 20:41
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Mabye I am bending the question slightly. But I think Saudi Arabia made a good example of a Wealth Tax that was hard to evade.

The locked the richest people in a hotel and then they could leave once the tax was payed.

https://en.wikipedia.org/wiki/2017%E2%80%9319_Saudi_Arabian_purge

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  • That's not really a tax, is it? That's just plain extortion. At best, this is a tax collection method, not a way to set up the tax. – user253751 Feb 25 at 19:00
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One example is a window tax, which, as one might surmise, is a property tax based on the number of windows in a house. There was a window tax in England and Wales for 156 years, and one in France for 128 years.

Evasion per se is either difficult (because it's hard to conceal, disguise, or otherwise hide a window) or easy (because you can just brick up all your windows and keep the lights on all the time) depending on how you'd like to define things.

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    I took a tour in London and we stopped in a very expensive area and the guide pointed out a house which had only one window and a bunch of blank slots where windows had been bricked up. He told is that the windows had been bricked up to avoid the window tax and when an owner subsequently tried to reopen the windows long after the tax was gone they were told that this was now a listed (protected) building and they weren't allowed to make alterations like that. End result was a multi million pound house with only one window in the front. Good for security I guess. – Eric Nolan Jan 24 '19 at 15:46
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    Do skylights count as windows? What about holes in the wall without glass? Mesh windows? I'm sure it's easy to evade. Also the number of windows in your house doesn't really correspond to wealth. – user253751 Feb 14 at 12:46

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