Of the many issues facing America, it’s unlikely that the ‘tax system’ would rank very highly on most people’s list — but maybe it should. The US now boasts a $2T deficit, and its debt is now the second largest expense in the government budget.
There’s a simple explanation: America spends more than it has. It seems simple to say ‘let’s just cut spending then,’ but it’s not really an option that either party is willing to deal with the fallout of. That means that the only option is to raise more revenue or keep kicking the can.
One popular proposal floated by folks with more progressive fiscal ideas is to impose a wealth tax which will affect very few, but very wealthy Americans. And while it might help level the playing field, it either wouldn’t work or would be a disaster.
Why a ‘wealth tax’ even matters: A wealth tax is an increasingly popular prospect among Americans because the US tax system is unfair. Workers bear the costs, while special interests are afforded loopholes and tricks to help offset or reduce their income. Because of policies like ‘buy, borrow, die’, many exceptionally wealthy folks don’t pay any tax at all — they just borrow against appreciable assets. This is where the proposal for a tax on a percentage of a wealthy person’s total wealth comes from.
- Such a tax could generate trillions in revenue from a very small base of filers: The “Ultra-Millionaire Tax Act of 2026” would affect households with more than $50M in household net worth; an independent estimate touts $617B/yr in average revenue.
- However, it’s likely to suffer legal, administrative, and enforcement pushback: There’s a lot of discussion on whether a ‘wealth tax’ is legal (and this Supreme Court is not amenable to progressive policy), or how wealth would be measured, or how enforcement would be handled.
An alternative: patching ‘buy, borrow, die’
Barring a remaking of the US government, a wealth tax is unlikely to stand up against legal or administrative muster. However, there is an intermediate alternative that could score with policymakers. The jury is still out on how it would look:
- Yale’s Budget Lab has proposed patching ‘buy, borrow, die’, which would eliminate a massive source of tax deference for the wealthiest Americans.
- Budget Lab laid out three proposals: ‘deemed realization’ when borrowing, a withholding tax on borrowing, or an annual excise tax on loan balances.
Why this would probably work: Nobody likes the idea of ‘more taxes,’ but patching existing inequities in the tax system is arguably the most effective way that the US can simplify its tax code and close its monster deficit. These changes would also stand to generate hundreds of billions in new revenue which would not fall on American workers, while introducing a key form of deterrence in the absence of sweeping reform.
