Several U.S. senators have proposed new legislation to raise $3 trillion in tax revenue over the next decade.1 Officially called the Ultra-Millionaire Tax Act, this new proposed legislation comes in part as a response to the economic turmoil Americans have experienced throughout the COVID-19 pandemic.
Senator Elizabeth Warren described the necessity for such revenue, saying, “As Congress develops additional plans to help our economy, the wealth tax should be at the top of the list to help pay for these plans because of the huge amounts of revenue it would generate2."
The vast majority of Americans would not be directly affected by the proposed wealth tax. But for those it would affect, this could greatly increase their tax obligation in the future. And regardless of our individual circumstances, we can all expect to hear a lot more about this potential change if it gains any traction in Congress.
What Is Being Proposed?
On March 1, 2021, Warren, along with several other senators, introduced the Ultra-Millionaire Tax Act. This tax legislation would affect roughly 100,000 households in the entire country, or those in the top 0.05% of net worth in America—about one household out of every 2,000. The Ultra-Millionaire Tax Act is a wealth tax that would affect those with a net worth of $50 million or more.
Affected ultra-high-net-worth households would be taxed as follows:
- 2% annual tax for those with a net worth of $50 million to $1 billion.
- 3% annual tax (2% tax plus 1% surtax) for those with a net worth of $1 billion or more.
What Makes a Wealth Tax Different?
With income tax, the individual is taxed on how much they made during the previous year in taxable income (such as a salary, retirement account withdrawals, interest, etc.).
A wealth tax, on the other hand, is computed based on an individual’s actual net worth, not the income earned over that year.
Do Wealth Taxes Currently Exist?
No wealth tax has yet been implemented in the United States.3 Several states have proposed wealth taxes—in 2020, for example, California introduced a wealth tax for residents (and eligible former residents) with a net worth of $30 million or more. The proposal, however, has not moved forward.
Several states currently have a millionaire tax. But this is based on an individual or family’s taxable yearly income, not their net worth.
Should You Be Concerned?
In a word, no. Our practice focuses on the very real needs of people who are not in the top 0.05% wealthiest American households. Mild-Mannered Millionaires™, and those in the making, can concentrate on other financial matters that will make an actual difference in their financial lives.
Even the ultra-high net worth individuals who may be affected probably need not be too concerned. As with any legislation, there’s no guarantee it will become law. There are significant hurdles ahead, including disagreement about the constitutionality of the proposal.
However, if the proposal begins to progress through the legislative process, it’s Ken’s opinion that we can expect to experience a vigorous, well-funded lobbying effort, including urgent emails, phone calls, letters, and social media posts falsely claiming that Congress is coming to get us.
Of course, those concerned about any potential tax obligations should consult with their financial and tax advisors for any steps they may find beneficial. The rest of us should do the same, but on matters that actually apply to our lives. We needn’t focus on a proposal that appears unlikely to become law, and that wouldn’t affect us, except very indirectly, even if it did pass.
Wondering what you can do to reduce your income taxes?
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