Senator Bernie Sanders (I-VT) recently introduced legislation that would impose a 5 percent annual wealth tax on billionaires and use the revenue to fund direct payments to Americans and expand social welfare programs.
The proposal would apply a 5 percent taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. to the net value of assets held by a taxpayer each year if their assets exceed $1 billion, a threshold that would be adjusted for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin. The proposal would also establish a federal “registry of ownership for assets,” requiring taxpayers to report annual valuations of investment accounts, real estate, and privately held businesses. One percent of the revenue raised would be dedicated to the IRS to increase enforcement.
Economists Emmanuel Saez and Gabriel Zucman estimate that the Sanders proposal would raise $4.4 trillion over 10 years, roughly 1.2 percent of US GDP annually ($367 billion), and slow the rate at which billionaires accumulate wealth, reducing wealth inequality. They assume a low evasion rate of only 10 percent, arguing that the bill’s enforcement mechanisms would significantly reduce evasion. Other than evasion, their modeling does not account for broader behavioral responses to a wealth taxA wealth tax is imposed on an individual’s net wealth, or the market value of their total owned assets minus liabilities. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary..
However, a 5 percent wealth tax would invite significant evasion and increase administrative complexity. Both effects would shrink forecasted revenue collections.
While a 5 percent tax rate might not seem punitive, the tax would be imposed annually on a stock of wealth rather than a flow of income. Thus, the cumulative impact of the tax is much higher than the headline 5 percent rate when compared with income taxes.
Put differently, a 5 percent wealth tax on assets earning a 5 percent annual return is economically equivalent to a 100 percent tax on that return. Rates this high would likely increase incentives for avoidance.
Saez and Zucman’s revenue forecasts are out of step with other estimates of high-rate wealth taxes. The key assumption is the elasticity of taxable wealth, or how both wealth accumulation and wealth reporting respond to the tax. We previously modeled similar wealth tax proposals from Senator Sanders and Senator Warren in 2020 using a semi-elasticity assumption of –8, the same assumption the Warren campaign used at the time.
Under this assumption, a 5 percent wealth tax would imply an evasion rate of roughly 33 percent rather than Saez and Zucman’s 10 percent, reducing expected revenue collection from $4.4 trillion to about $3.3 trillion over 10 years.
Even this estimate may be optimistic. Factoring in baseline avoidance in the existing tax system and stronger behavioral responses, tax scholar Kyle Pomerleau projects the tax may raise about $2.3 trillion over 10 years (and potentially less as wealth accumulation slows over time).
The proposal’s sudden application at the $1 billion threshold would also create distortions. Because the tax applies to the entire stock of wealth once the $1 billion threshold is crossed, taxpayers would have a strong incentive to keep reported wealth just below the threshold. Under this design, the proposal may raise far less revenue than advertised in the long run.
The proposal’s advocates have focused on closing opportunities for tax evasion under the wealth tax by tightening rules governing grantor trusts and gifts and imposing a 60 percent tax on taxable net wealth for taxpayers who expatriate from the United States. It is far from clear that these rules will close all possible avoidance opportunities.
However, even if all avoidance methods were prevented, billionaires could still shift toward consumption rather than continued investment. This would make sense in many cases, given the effective income tax rate approaching 100 percent on investment returns. Billionaire consumption permanently removes assets from the taxable wealth base, shrinking the pool of wealth subject to tax and reducing future revenue.
More broadly, a wealth tax would reduce US saving by lowering the after-tax return to holding wealth. In an open economy, reduced domestic saving may be offset by increased foreign capital inflows, resulting in a larger trade deficit and lower long-run US national income (GNP). To the extent that domestic wealth held by billionaires is replaced by foreign-owned capital not subject to the tax, the wealth tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. would shrink, reducing expected revenue collections.
This proposal faces administrative problems beyond avoidance and economic distortions. Most developed countries have abandoned wealth taxes because of practical and legal challenges in administering them. As of 2025, only three European countries levy a broad net wealth tax, while four others tax selected assets. Wealth taxes comprise a small share of revenue for those countries, ranging from about 0.2 percent of GDP in Spain to 1.2 percent of GDP in Switzerland in 2022. The proposed 5 percent rate would be the highest in the Organisation for Economic Co-operation and Development, with the Spanish top wealth tax rate of 3.5 percent in second.
Further, in the US, a wealth tax would be in legally perilous territory because the Constitution requires direct taxes to be apportioned among the states, and the Sixteenth Amendment permits unapportioned direct taxation only in the case of income taxes.
Wealth taxes are a particularly uncertain tool for raising revenue and addressing concerns about inequality. International experience and economic modeling suggest wealth taxes would raise less revenue than advertised while creating significant distortions and administrative challenges. Policymakers seeking sustainable revenue sources can find more reliable and less distortive options within the existing tax base.
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