In recent weeks a number of Democrats in both the House and Senate have offered wealth tax proposals that would impose current tax liability on unrealized gains in wealthy taxpayers’ assets. Generally, the proposals target the super wealthy—those with assets of $50 million or more. Some include higher income tax rates on wealthy taxpayers’ income, too. All are or will be in the debate over deficit reduction, offsetting revenue, and the fairness of the tax code.

On March 25, the wealth tax debate’s leader, Sen. Elizabeth Warren (D-MA), re-introduced her bill, the Ultra-Millionaire Tax Act (S.4246). The Warren bill would impose a two percent tax on annual wealth held by taxpayers with assets valued at more than $50 million. In addition, the bill would impose another one percent surtax on accumulated wealth in excess of $1 billion.

Rep. Pramila Jayapal (D-WA) introduced the companion bill, H.R.8085, in the House.

One pair of private sector economists estimated that this proposal could raise more than $6 trillion over 10 years. Other economists dispute that revenue estimate, pointing to a variety of ways that wealthy taxpayers could avoid the tax. However, the only estimate that counts is the one to be done by the Joint Committee on Taxation (JCT).

Other wealth tax bills have been offered by Sens. Bernie Sanders (I-VT), Cory Booker (D-NJ), and Chris Van Hollen (D-MD). Some of these proposals are linked to, and are intended to pay for, proposals to raise the income threshold for the payment of taxes by lower-income taxpayers. Cosponsorship of these wealth tax bills is so far limited to Democrats, but the number of Democrats signing on to one or more of these bills is growing. There are 10 Democratic cosponsors of the Warren bill in the Senate, and 42 Democrats have cosponsored the House legislation.

The constitutionality of these wealth tax proposals is an open question that could ultimately determine the outcome of a decision on whether to enact any of them (or a variation of one or more of them). There is serious debate among tax experts as to whether a tax on unrealized gains is constitutional (although the tax code does currently contain examples of mark-to market taxation that have either not been legally challenged or survived legal challenge) or if a wealth tax in and of itself can pass muster under constitutional analysis.

There are (or will be) also real questions about a wealth tax’s impact on permanent life insurance. Debate on the proposals will, once it gets underway, include discussion of whether to exempt certain kinds of assets from the tax’s reach. Permanent life insurance, owner-occupied housing, and retirement savings are all assets that have in the past won support for being exempt (at least within limits) from a proposed wealth tax.

Prospects: The future of these bills is very much in question. Certainly, while Republicans control the House, Senate and White House, prospects for this kind of legislation are dim. But if Democrats win control of the House and/or the Senate after the November elections, and if a Democrat wins the 2028 presidential election, odds are that there will be serious debate over these proposals. It is interesting to note that some states are taking matters into their own hands and exploring these sorts of taxes.

NAIFA Staff Contacts: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org