If your fortune exceeds $50 million, you may pay more in taxes under the Ultra-Millionaire Tax – an effort to create a fairer economy, level the proverbial playing field and narrow the racial wealth gap.
How it Works
As a result of the COVID-19 pandemic, the U.S. wealth gap has widened. The Ultra-Millionaire Tax Act asks the wealthiest 100,000 households in America – that is, the top 0.05% – to simply ‘pay their fair share.’
“The ultra-rich and powerful have rigged the rules in their favor so much that the top 0.1% pay a lower effective tax rate than the bottom 99%, and billionaire wealth is 40% higher than before the COVID crisis began,” posted Senator Elizabeth Warren (D-Mass) on her website.
The Ultra-Millionaire Tax Act aims to close the wealth gap with a proposed annual progressive wealth tax of 2% on household net worth and trusts between $50 million and $1 billion. For households with a net worth and trusts above $1 billion, the tax calls for a 1% annual surtax, that’s 3% tax overall.
Tax payments would start in 2023 based on wealth as of end of 2022.
Without raising taxes, the sponsors say, the Ultra-Millionaire Tax would bring in at least $3 trillion in revenue over 10 years – without raising taxes on the 99.95% of American households that have net worth below $50 million.
- A $100 billion investment to rebuild and strengthen the IRS, ensuring the agency has the resources to hire and train additional personnel, modernize IT systems, and implement the new asset valuation, reporting, and enforcement requirements for the Ultra-Millionaire Tax
- A 30% minimum audit rate for taxpayers subject to the Ultra-Millionaire Tax
- A 40% “exit tax” on the net worth above $50 million of any U.S. citizen who renounces their citizenship in order to escape paying their fair share in taxes
- New tools to determine the value of hard-to-value assets, enabling the IRS to tighten and expand upon existing valuation rules
- Systematic third-party reporting that builds on existing tax information exchange agreements adopted after the Foreign Account Tax Compliance Act, and penalties for underpayment
The Bill Likely Faces Obstacles in the Senate
One obstacle that a 2020 Tax Foundation analysis found with the proposal is the possibility the tax would reduce U.S. economic output by 0.37% and 0.43%, respectively, over the long term.
The Tax Foundation reported on CNBC that a wealth tax would face administrative and compliance challenges, such as difficulty valuing assets and likely tax evasion schemes.
Have the Rich Not Paid Their ‘Fair Share?’
It’s important to note that many high-and-ultra-net-worth individuals pay little or no federal income tax by writing off various permissible IRS approved deductions as part of a predetermined and appropriate tax-planning strategy.
When you understand the creative tax options available to you legally, safely and legitimately to reduce or eliminate taxes, charitable giving will likely be a notable component of it.
Tax planning is not just for the ultra-millionaires.
Authors Phil Gramm, and John F. Early wrote, in a Wall Street Journal op-ed piece, “Wealthy Americans Already Pay Their Fair Share,” that the claim that wealthy people don’t pay their fair share of taxes is “revealing in that it fits a pattern of argument increasingly employed by the left.”
The authors suggest that while Bill Gates’ tax returns have never been made public, he has reportedly given $45 billion to charity. “It isn’t clear that taxing Mr. Gates more and leaving less for him to donate to private charities would serve the public interest.”
Regarding Warren Buffett, who donates billions to charity and pays himself a nominal salary, “because he rarely sells assets and makes considerable charitable donations, Mr. Buffett might, as he often says, actually pay a lower effective tax rate than his secretary.”
Gramm and Early agree that the purpose of taxation is to serve the general welfare. “To the degree that Mr. Buffett simply accumulates and does not consume, his wealth is creating jobs and promoting the general prosperity rather than benefiting him personally,” they say.
If you or someone you know has questions or concerns, make it a point to contact us at Hefren-Tillotson today. We would be happy to help.