How would a wealth tax on the super-rich work?

Some of America’s richest people have urged US presidential candidates to back a wealth tax on the super-rich to improve inequality and tackle climate change.

“A wealth tax could help address the climate crisis, improve the economy, improve health outcomes, fairly create opportunity, and strengthen our democratic freedoms. Instituting a wealth tax is in the interest of our republic” an open letter signed by 18 signatories said.

Claiming “America has a moral, ethical and economic responsibility to tax our wealth more,” billionaire financier George Soros, Facebook co-founder Chris Hughes, a descendant of Walt Disney and the owners of the Hyatt hotel chain among others pointed out that fellow billionaire Warren Buffett, the third richest man in America, is taxed at a lower rate than his secretary.

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While insisting they were non-partisan and not endorsing any particular candidate, the letter praised a proposal by Democratic presidential hopeful Senator Elizabeth Warren that would lift taxes on those with more than $50m, and an additional 1% on assets over $1 billion. This measure would affect the 75,000 wealthiest families and is estimated to raise $2.75tn over 10 years.

Warren is just one of a number of presidential candidates pushing for higher-taxes on the super-wealthy. The New York Times says “a desire to curb the rising concentration of wealth has long been part of the Democrats’ core message, but a Republican tax bill in 2017 that delivered the biggest benefits to Americans with the highest incomes reinvigorated the debate”.

Analysis of a recent Federal Reserve report found that over the last three decades, the wealthiest 1% of Americans saw their net worth grow by $21 trillion, while the wealth of the bottom 50% fell by $900 billion.

Of about 40 countries, the US is the sixth highest in terms of wealth concentration, according to data from the Organisation for Economic Co-operation and Development (OECD).

Earlier this year Oxfam’s annual wealth check revealed the world’s richest 26 people now own as much as the poorest 50%. The Guardian says a global wealth tax of 0.5% on the world’s richest 1% would raise an estimated $418bn (£325bn) a year, “enough to educate every child not in school and provide healthcare that would prevent 3 million deaths”.

Yet the Daily Telegraph says wealth taxes have been implemented in many European countries over the past few decades, “with varying degrees of success”.

According to the OECD, in 1990 12 countries had wealth taxes, but today this figure has dropped to four: Norway, Spain, Belgium and Switzerland. In a report, it said the reason many countries such as France and Germany repealed the levy, was because of administrative and efficiency concerns, and the fact that “the revenues collected from net wealth taxes have, with a few exceptions, been very low”.

“The wealth tax isn’t embraced by all Democrats because many believe it would be difficult to assess objectively the value of wealth like artwork and jewels” says TIME magazine. “There are also concerns that such a tax is unconstitutional because the federal government is prohibited from taxing property, only income”.

Nevertheless, a recent survey showed that roughly seven out of 10 Americans supported higher taxes on the wealthiest Americans.

In a sign of how widespread support for a wealth tax is, The Hill said the poll “showed support for the idea among people of all ages and races and from both political parties”.

In addition, a CNBC survey this month found that a majority of millionaires also support a tax on wealth above $50 million.

The BBC notes that incumbent US president Donald Trump “proposed a one-off wealth tax in 1999 to cut the national debt, but did not make it part of his election policy”.