Senator Elizabeth Warren (D-MA) proposed a bill that would provide for an annual tax on households and trusts with a net worth of over $50 million.
The "Ultra-Millionaire Tax Act of 2021" would tax:
- two percent of the net worth of households and trusts worth between $50 million and $1 billion; and
- three percent of the net worth of households worth over $1 billion. If a "Medicare for All" health plan is enacted, the bill specifies that the rate for households of over $1 billion would increase from three to six percent.
Additionally, the bill (i) increases funding for the Internal Revenue Service to enforce the proposed bill through increased audits and (ii) creates a 40-percent tax on net worth for an individual subject to the tax who renounces his or her U.S. citizenship to avoid the tax.
Senator Warren, who was recently appointed to the U.S. Senate Finance Committee, said that the wealth tax could be a way to help pay for aid related to the economic downturn associated with COVID-19, and that the additional IRS revenue could be used to pay for the childcare, education and infrastructure reforms that President Biden has prioritized.
The bill is unlikely to be passed in the short term. President Biden has yet to support a wealth tax. Further, Treasury Secretary Janet Yellen recently stated that a wealth tax would have "very difficult implementation problems."
Commentary Mark Howe
The walls may be closing in for ultra-high net worth taxpayers. President Biden's tax proposals include taxing capital gains at the same rate as ordinary income and eliminating the step-up basis at death (see Cadwalader Brass Tax on Biden's plan). But in terms of generating immediate revenue the Biden approach only provides two legs of the stool as high-income taxpayers can defer these taxes until the bitter end for appreciated assets.
Senator Ron Wyden (D-OR) and New York State provide the third leg of the stool by introducing legislation for "marking to market" certain assets of high net worth individuals. Mark-to-market would tax annually at ordinary rates any appreciation in the relevant portfolio.
Senator Warren, on the other hand, would lock the room by taxing on an annual basis at a 2% tax rate the net worth of households of over $50 million assets, and a 3% tax rate the net worth of households over $1 billion. The wealth tax is a different approach by broadly taxing the presumably appreciating portfolios of high net worth individuals.
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