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Sen. Warren unveils ‘wealth’ tax bill

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Tax Hot Topics newsletter Sen. Elizabeth Warren, D-Mass., has introduced legislation that would fulfill her promise to create a “wealth tax.” The legislation would impose an annual tax on the net value of a taxpayer’s assets on the last day of the year.

The tax rate would be 2% tax on assets in excess of $50 million and 3% for assets in excess of $1 billion. The 3% rate would increase to 6% if a comprehensive health insurance program is established in the United States. For taxpayers expatriating during a tax year, the rate of tax would increase to 40%.

Warren is on the Senate Finance Committee and is a former presidential candidate who remains popular in the party, but the wealth tax does not have universal support amount Democrats. President Joe Biden has never endorsed the idea, nor has Finance Committee Chair Ron Wyden, D-Ore. The idea also raises administrability concerns.

The IRS would be directed to establish valuation rules that may use formulaic methods and may address valuation discounts. The bill provides for penalties for valuation understatements.

Taxpayers subject to the tax would include any individual or trust (except for pension, profit-sharing and stock bonus trusts that are exempt from taxation). Spouses, trusts with substantially the same beneficiaries, and trusts that decant or gift assets would be treated as one taxpayer. There is no exclusion for charitable trust, so public charities organized as trusts or other trusts that may have charitable beneficiaries could be subject to the wealth tax.

Certain tangible personal property with a value of less than $50,000 would not be included in the tax base. The “property of the taxpayer” is defined as property that would be included in the estate of the taxpayer if the taxpayer had died. More importantly, the property of a grantor trust is treated as the property of the grantor. The grantor trust provisions may make sense for grantor trusts that are revocable, but if the taxpayer has an administrative power that makes the trust a grantor trust, and they have no access to the assets of the trust, this could result in taxpayers having a wealth tax liability in excess of their personal assets. Any property transferred by gift to a family member under the age of 18 is also considered as the taxpayer’s asset until the family member turns 18.

There are special rules for taxpayers who die during the tax year, nonresidents and covered expatriates.

Contact:
Brad Roe
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T  +1 832 476 5080

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