Depending on how the 2020 election goes which is a long, long time away this post will likely not age very well, but it has been on my mind nonetheless.  I believe that the Annual Wealth Tax is an absurdly ridiculous pipe dream.  I won’t being to discuss the constitutionality because, to be quite frank, I don’t think I would even know where to begin.  The reason that the tax won’t work is because the enforcement is going to be absolutely a shit show.

What is Warren’s Wealth Tax

As part of her presidential campaign, Elizabeth Warren has proposed taxing the ultra wealthy a small percentage annually.  Specifically the wealth tax as currently proposed,

wants to add a new levy with its own distinct purpose: a yearly 2% tax on household net worth above $50 million, with a 3% rate on net worth above $1 billion.

The tax would affect about 75,000 households, with fewer than 1,000 exposed to the 3% rate on net worth above $1 billion.

Seems reasonable, right? That is just too much money for one person to need, want, desire or have /s/.  It would almost be analogous to our current estate tax which usually takes a snapshot of the gross value of the estate at death…however, this would happen annually.

What Would Enforcement Look Like on the Wealth Tax?

Having lived in the estate planning world for most of my working career I can tell you that valuation is a very much an art form.  The ultra wealthy, aren’t like most folks:

Courtesy of: Visual Capitalist

For me to add up my net worth monthly just isn’t that big of a deal. I sign into my various brokerage accounts and everything I own minus my main (and only residence) is marked to market almost every single second of every single business day.  Look at those bottom rows, which is where the tax would primarily live, they are made up of assets that are just not value that often.  If anyone knows a business owner, of a $25mil, $100mil or even $500mil private business they do valuations for a few reasons (mainly estate and business succession planning) and I will tell you that it is not very often.

So they have to get valuations more often, no big deal, they are rich, right? Well what happens when the IRS invariably disagrees with those valuation experts? Are these people going to be getting audited every single year? in perpetuity? Then end up in court because they have the means to keep fighting?  You also then have the question of whether Trusts avoid the tax?  While that would be great for business, I couldn’t even imagine how it is actually applied every single year.

I don’t see the tax going anywhere but in today’s climate…who knows!