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A Wealth Tax On Billionaires Probably Won’t Work — Here’s What Would

Of the many issues facing America, the "tax system" probably wouldn't rank high on most people’s list — but maybe it should. The US now boasts a $2T deficit, and its debt is the second-largest expense in the government budget.

There’s a simple explanation: America spends more than it takes in. It seems simple to say, "Let’s just cut spending then,’ but that's not really an option either party is willing to deal with the fallout of. That leaves two choices: 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 it would be a disaster.

Why a "wealth tax" even matters: A wealth tax is gaining popularity because the US tax system is unfair (opens in a new tab). Workers bear the costs (opens in a new tab), while special interests get loopholes and tricks to offset or reduce their income. Because of strategies like "buy, borrow, die", many exceptionally wealthy people pay little or no tax at all — they just borrow against appreciable assets. This is where the idea of taxing 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 apply to households with more than $50M in net worth; an independent estimate touts average revenue at $617B/yr.
• However, it’s likely to suffer legal, administrative, and enforcement pushback: There's a lot of debate over whether a wealth tax is even legal (and this Supreme Court isn't friendly to progressive policy), how wealth would be measured, and how enforcement would work.

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's a middle-ground option that could appeal to policymakers. The jury is still out on how it would look:

• Yale’s Budget Lab has proposed patching "buy, borrow, die" (opens in a new tab), which would eliminate a massive source of tax deferral 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 for the US to simplify its tax code and close its monster deficit. These changes could also generate hundreds of billions in new revenue without falling on American workers, while adding a real deterrent in the absence of sweeping reform.