Wealth Tax Talks Heat Up as Supreme Court Weighs In, New House Tax Teams Formed, and Senate Tax Bills Aimed at Successful

It’s been tried, abandoned, and tried again, but Congress still toys with the idea of a “Wealth Tax.”

Bad taxes don’t die or fade away, they just seem to hide in the shadows and wait for another day.

As summer began, the Supreme Court ruled seven to two in favor of the constitutionality of the Mandatory Repatriation Tax (MRT), validating Congress’s power to tax shareholders on the undistributed income of corporations in the recent Moore v. United States case.

Even if Supreme Court didn’t nod to a new wealth tax, conversations on Capitol Hill concerning a new “Billionaire’s Tax” are still more than whispers.

In our annual survey among family business leaders, a “Wealth Tax” is now ranked as among the top new worries.

In the survey, the top tax worry was personal income taxes, that is, they are too high, but five percent said a “new wealth tax” is the most troubling tax. It may not seem like much, five percent, but in last year’s survey the percentage was zero.

Since last year, three Senate hearings, basically sounding boards, were held on different forms of a “wealth tax,” with the biggest headline grabs coming from the Senate’s proposed “Billionaire Tax.”

Senate Finance Committee Chairman Ron Wyden (D-Ore.), introduced the Billionaire’s Income Tax Act in June. The legislation is aimed at getting billionaires and millionaires to pay “their fair share.”

Initially, 15 Democratic senators signed on to the bill, including media savvy Sheldon Whitehouse (D-RI), Elizabeth Warren (D-Mass.,) Sherrod Brown (D-Ohio), and Bernie Sanders (I-Vt.), to name a few.

The measure, Wyden says, is to, “for the first time, end legal ways billionaires avoid paying taxes.”

A hearing of the US Senate Budget Committee on 12 June 2024 convened by Chairman Sen. Whitehouse ostensibly to discuss “making Wall Street pay its fair share” in taxes, quickly revealed some deep divisions between Democrats and

Republicans, as they confront the pending expiration at the end of 2025 of much of the Trump-era Tax Cuts and Jobs Act of 2017.

What exactly are we talking about when it comes to a Wealth Tax? What does it mean for family businesses? For everyone?

Wealth taxes are recurrent taxes on an individual’s wealth, net of debt. It’s a tax on top of all the current taxes paid personally, by family businesses, and on the full value of the assets owned.

The concept of an annual net wealth tax is like a real property tax. But instead of taxing just real estate, it covers all wealth an individual owns, including the value of a family business. And it changes as a business or household’s fortunes change from year to year. This means everyone will need to value their total wealth, up or down, annually. This wealth is then taxed, up or down.

Who calculates these personal and business evaluations? Does a Wealth Tax even work? Does it generate much tax revenue?

According to a 2018 report from the Organisation for Economic Co-operation and Development (OECD), an international policy organization of 38 democracies, wealth taxes not only collect little revenue, but they create a lot of legal uncertainty and can “kill the entrepreneurial spirit.”

The report, titled “The Role and Design of Net Wealth Taxes,” argues wealth taxes can “disincentivize entrepreneurship, harm innovation, and impact long-term growth.”

So much for striving to be a successful individual or building a successful family business.

The report says that instead of reforming and hiking wealth taxes, “countries should repeal it.”

In Europe, for example, wealth taxes are in several countries, including Norway, Spain, and Switzerland. France and Italy levy wealth taxes on selected assets, but not on an individual’s net wealth.

How much are we talking about?

Here are a few examples, and this is what our Senators are eyeing.

In Norway, individuals are levied a net wealth tax of one percent on an individuals’ stocks exceeding US$160,000, with 0.7 percent going to municipalities and 0.3 percent to the central government. Additionally, for net wealth exceeding US$1.94 million, the tax rate is 1.1 percent.

Spain’s net wealth tax is a progressive ranging from 0.16 percent to 3.5 percent on stock holdings above US$757,850, with rates varying across regions.

Additionally, Spain started a “solidarity wealth tax” in 2022 and 2023 (to be collected in 2023 and 2024) ranging from 1.7 percent to 3.5 percent on individuals with net assets exceeding US$ 3.25 million.

In 2018, France abolished its net wealth tax and replaced it with a real estate wealth tax.

Countries that used to have wealth taxes, but then also abolished them in the 1990s and 2000s include Austria (1994), Denmark (1997), Germany (1997), the Netherlands (2001), Finland, Iceland, Luxembourg (all three in 2006), and Sweden (2007).

In their plan, Wyden and Whitehouse want to overhaul the tax code to fix carried interest, create a minimum corporate income tax on foreign profits, raise taxes on stock buybacks, enact minimum taxes on the richest Americans, and increase estate and gift tax exemption amounts, among a few of the proposals.

All these new taxes are under the “pay a fair share” umbrella, but the obvious targets to pay more are family businesses, with over 80% being pass through entities that are already disadvantaged over corporations paying a low 21% in taxes, versus pass-through entities paying up to 37% in federal taxes.

While the Senate mulls the Billionaire Tax, the House Ways and Means Committee Chairman Rep. Jason Smith (R-MO) and Tax Subcommittee Chairman Rep. Mike Kelly (R- PA) announced the formation of ten Tax Teams, comprised of Ways and Means members, to study key tax provisions from the 2017 Trump tax cuts set to expire at the end of 2025.

The goal for each team is to identify legislative solutions that will continue to help families, workers, and small businesses.

If action is not taken, according to Rep. Smith, and the 2017 tax cuts expire, an average family of four earning $75,000 would see their taxes increase by $1,500 a year, while a family of five with two earners making around $100,000 would see a tax increase of nearly $7,500 a year.

The Tax Teams in the House are set up as follows: American Manufacturing, Working Families, American Workforce, Main Street, New Economy, Rural America, Community Development, Supply Chains, U.S. Innovation, and Global Competitiveness.

Unfortunately, what may seem like a fair tax for some often means an unfair tax for others. Again, unfortunately, that unfairness too often falls on the shoulders of America’s family businesses, the largest private employer in the country, accounting for 83.3 million jobs.

The only fix to making sure successful individuals and family businesses don’t fall victim to misguided “fair share” tax proposals is to speak out on Capitol Hill.

The next Congressional Family Business Caucus Meeting is scheduled for Sept. 18. The meeting will address “pass-through tax” and proposed wealth tax legislation.

This is the time for us to speak up and let our leaders in Washington D.C. hear from the largest private employer in the land.

Let’s make sure they don’t kill the spirit, and success, of America’s family businesses and successful individuals.

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