At the federal and state level, some lawmakers are working to raise taxes for the wealthy.
Just about a year ago, President Biden used his State of the Union address to highlight income inequity in this country. One of the measures he proposed to reduce inequality was a so-called “billionaire’s tax,” a 25 percent minimum tax on the wealthiest Americans. While the move to boost taxes on the one percent fell somewhat flat in the U.S., elsewhere it does not.
At Davos this year, at the annual World Economic Forum in Switzerland, a group of more than 200 of the ultra-wealthy released a letter boosting their initiative, “Proud to Pay More.” The accompanying report plainly states, “Taxing the very richest is a simple and effective way of dealing with the problem and has multiple economic benefits beyond just reducing extreme inequality.” Elsewhere in the world, work is afoot from the European Tax Observatory, the European Citizens’ Initiative, and other groups to exercise regulatory levers to reduce inequality and increase economic stability.
Stateside, the Tax Justice Initiative is a collection of bills that follow in the footsteps of the Ultra-Millionaire tax proposed by Senator Elizabeth Warren. Overall, these measures are driving a trend to examine ways in which high-asset individuals and their portfolios could be taxed to address “extreme economic inequality.” As noted by the Davos group, the decline of tax rates on the wealthy—on income and capital gains—“has been the economic orthodoxy of the last 50 years.”
Given the involvement of the ultra-wealthy in requesting tax increases to combat wealth inequality, the trend is likely here to stay. In the U.S., there are several states considering wealth taxes through a variety of means including estate taxes, taxes on assets rather than income, and capital gains taxes. Critics of the idea point to the difficulty of assessing net worth as well as the ease by which high-wealth individuals can move to different states. The latest effort is in Vermont, where legislation is being introduced to tax capital gains for those with more than $10 million in net worth.
While political winds will push these initiatives back and forth in the coming years, the middle class continues to erode under the burden of taxes not paid by individuals and enterprises. A recent detailed report from the Institute on Taxation and Economic Policy took a deep dive into the tax systems of each state in the U.S., including the District of Columbia. The key findings basically point to an unsustainable tax condition (e.g. tax regression and middle- and lower-income families shouldering higher relative taxes than the wealthy) in this country except for six states and DC. In those states, legislators are working to reduce income inequality.
There are questions for both sides of the equation with neither side likely to give way anytime soon.
Experienced tax attorneys help you with tax compliance, offshore tax opportunities, and tax controversy
Robert J. Fedor, Esq., LLC offers skilled legal guidance to clients throughout the U.S. and abroad on IRS audits, criminal tax investigations, and employment tax disputes. When you have questions about individual or business tax compliance, call us at 800-579-0997 or contact us. We have offices in Cleveland and Chicago.
