Q&A: A Tax on Billionaires’ Assets?

While politically popular, the proposal could be wide of the mark

President Joe Biden and Democrats in Congress are looking for ways to fund their legislative priorities, but a UConn researcher says a proposed tax on the assets of billionaires likely won't accomplish that goal.

President Joe Biden and Democrats in Congress are looking for ways to fund their legislative priorities, but a UConn researcher says a proposed tax on the assets of billionaires likely won't accomplish that goal (Photo by Chip Somodevilla/Getty Images)

If President Joe Biden’s proposed multi-trillion dollar economic and climate package can get Congressional approval, one key factor hangs in the balance: how to pay for it. One option is a “wealth tax’’ that would be levied on the assets of billionaires.

UConn accounting professor Steve Utke studies the implications of tax changes. He recently spoke with UConn Today about his work.


As you learned of the proposal to impose tax on individuals’ wealth or on their unrealized gains on assets, what was your reaction? Do you think this approach will be successful?

Wealth taxes have been imposed in a variety of countries other than the U.S. at various points in time. Many of these taxes were ultimately repealed. My initial reaction to the proposals was that we may be heading down a path that has not been successful in the past.

Broadly, these types of taxes are “mark-to-market” taxes. Mark-to-market taxes refer to tax systems where asset prices are adjusted to their market values at a specific point in time (e.g., December 31) and the assets’ owners are taxed based on those values even though they have not sold the assets. Mark-to-market taxes can either be imposed on the total value of assets, or wealth, at a point in time or on the change in value of assets, or income, over a period of time.

There are two main challenges to imposing mark-to-market taxes. First, mark-to-market taxes become complicated when determining which assets are subject to the tax and, more importantly, how to value those assets. Under the traditional tax system, assets are taxed when sold, making valuation easy. That is not the case in a mark-to-market system. Second, and relatedly, these systems may create distortions in the markets as individuals react to the new tax by, for example, choosing to own assets not subject to the tax. In the U.S., there is an additional consideration regarding whether these taxes are constitutional, which I won’t touch on but is currently being debated in legal circles.

If this tax is levied, could the wealthy avoid it?

Yes, this is one of the primary findings from studies of wealth taxes in other countries. First, the current proposals focus only on taxpayers with wealth or income above a threshold. This can lead to taxpayers managing their assets or income to fall below the threshold, for example by splitting their assets among many relatives. Second, taxpayers may misreport their wealth. If some assets are harder to value than others, taxpayers may misreport those harder-to-value assets. Third, and relatedly, taxpayers may alter their investments and shift their assets to hard-to-value assets, which will distort asset prices. For example, easy-to-value stocks may be disfavored in a mark-to-market tax system, while hard-to-value private investments may be preferable. Similarly, there may be increased interest in foreign assets that may face fewer reporting requirements.

Any mark-to-market tax will include some attempts to limit taxpayers’ ability to engage in these transactions to avoid tax, but history suggests that taxpayers will find ways to avoid tax.

The average person likely thinks this is a great idea. Is there something they are missing regarding the implications of this policy?

The fact that the tax will likely distort investment choices and asset prices may be the missing pieces. In a recent study, Professor Paul Mason (at Baylor University) and I find that U.S. assets currently subject to mark-to-market tax regimes have lower prices and less interest from traders than similar assets not subject to mark-to-market taxes. Considering this more broadly, there is concern among regulators that the number of publicly listed firms is decreasing and most capital is in private markets, limiting retail investors’ access to growth assets. If a mark-to-market tax regime makes private assets more attractive, because they are harder to value or exempt from mark-to-market tax, it could reduce the prices of stocks (e.g., retail investors’ 401(k) retirement accounts) and accelerate the decline of public stock markets.

President Biden has said, “A teacher shouldn’t pay a higher tax rate than a profitable company. It’s time we reward work in this country-not just wealth.’’ If the White House called you and asked, based on your tax knowledge, to recommend a more fairly-shared tax strategy, what would you say?

I would suggest looking into research in more detail to find viable options. For example, it is well-accepted that the state- and local- income tax deduction benefits wealthy taxpayers and should be limited or repealed. But there is political pressure to allow this deduction. I have other research with UConn Ph.D. candidate Jennifer Luchs-Nunez and UConn alumna Erin Henry ’14 Ph.D. at the University of Arkansas that suggests a recently repealed tax on certain transactions of private corporations, generally owned by wealthier taxpayers, does not distort taxpayers’ behavior. So, this tax could likely be re-imposed without harming the economy. There are numerous think-tanks and economists proposing a variety of workable solutions. In a broad sense, the tax code allows numerous deductions, credits, and exemptions, often referred to derogatorily as “loopholes” despite being explicitly allowed for taxpayers to use. A thoughtful review of which of these are worth keeping due to the benefits to society, versus which are primarily included to satisfy political considerations, would be the best place to start. In other words, fixing the current system seems preferable to creating new tax systems.

As a taxation expert, do you think this issue of how to more equitably tax our residents will be something discussed for years to come? Is there any kind of resolution on the horizon? 

This topic is certain to remain at the top of conversations. The key to getting to a resolution is to find workable, common-sense solutions with broad support, rather than catering to “squeaky wheels.” I think there are numerous solutions that a broad set of reasonable people can agree to. Laws passed purely on partisan lines, such as the 2010 Affordable Care Act and 2017 Tax Cuts and Jobs Act, don’t provide solid resolution because of concerns that they will be substantially changed or repealed by a subsequent administration.