SENATE BILL: Wealth Tax Act (Passed)

[Fmr. Representative Encke]

How much does this generate in revenue?

The original proposal generates $275 Billion in revenue annually. However, I tweaked some of the rates and added some exemptions. It would be helpful if the GM team could score this.

Is there time frame for how long that will take?

My guess is, anywhere from a couple days to 2 weeks

I did a wealth tax estimate for Lincoln so generating some numbers should be easy. However, the big question (and the part that makes this more difficult) is how each new tax affects all of the other taxes and their revenues, especially with so many changes being discussed at once.

Also, has anyone been keeping, like, a spreadsheet or something on new spending/revenue for this session for easy reference? Don't think anyone has asked for an analysis of the Buffett rule one yet but I assume I'll have to cost that one as well.

[Fmr. Representative Encke]

Federal Wealth Tax Estimate

K, this raises 62.566+/-35 billion dollars.

One annoying thing that delayed costing this:
Pretty much the only good way to estimate the size of the tax base for this comes from manipulating estate tax numbers using estimated mortality rates. However, the IRS data only goes up to 50 million, which makes estimates of the surplus tax revenues difficult and required me to cobble together information from other sources. I included an error column because, due to the extremely narrow tax base, error is quite large.

Also, since this will be implemented in FY2021, this might need tweaking at that time, since I'm using FY2020 estimates as a baseline.

Side note: Lincoln has also added a 3% wealth tax for their budget this year. Therefore, any effects of the additional 2% federal tax will be more pronounced in Lincoln and revenues there may decrease upon implementation.

[Fmr. Representative Encke]

Federal Wealth Tax Estimate

How does the mortality assumption come into play?

The mortality assumption is how the estate tax numbers are transformed into wealth tax numbers. Last year (2018) around 15 U.S. billionaires died out of a total of 680 (2.2%). If you take the effective estate tax rate for the 50 mil+ category (that is, the effective rate taking exemptions and the exclusion amount into account) and multiply it by the mortality rate (here assumed to be 0.02) and a multiplier that brings it in line with the proposed wealth tax, then you can apply this to the current estate tax revenues to estimate how much a wealth tax would bring in. Note that the wealth tax estimate is therefore inversely proportional to the mortality assumption.

I prefer this way of estimation to the 'just take net worth and multiply by the tax rate' method because the estate tax revenues implicitly carry information about tax evasion (note that I did add a multiplier at the end to account for increased enforcement as well as differences between the estate tax and the wealth tax).

[Fmr. Representative Encke]

So you're applying the wealth tax to the estate of the deceased? Does the estimate include folks from living households?

Answer to the first question is no.
Answer to the second question is yes.

That's the entire point of the mortality assumption; the data supplied by the estate tax (on the deceased) is transformed into data for the wealth tax (on the living), with modifications of course.

[Fmr. Representative Encke]

So the minimum amount raised by this is $29 billion annually correct?

I mainly included the error to emphasize that it is difficult to produce a 'hard estimate.' Is it possible that revenues are that low? Yes. Do I view that to be a likely outcome? No. Also, there is no currently-implemented RL analogue for this proposal so there's no way to check my work the way that one can check income tax or payroll tax revenues. Estimates for Warren's proposal range from 25 billion to 175 billion (the high estimate is the one endorsed by the campaign, of course) so it's not as if one can find a definitive answer there, either.