Significant legislation has been passed in efforts to get the national economy on its feet following the COVID-19 pandemic. Simultaneously there have been significant efforts at the national level to address what many call the wealth inequality in America. One proposed approach that has been gaining momentum is to increase taxes on the wealthiest Americans, thus reducing some of the income disparity currently seen across the nation.
Lawmakers have focused on several efforts, both nationally and at the state level, to address wealth inequality. Let’s look at where some of these proposals stand.
The Ultra-Millionaire Tax Act
In March of this year, Democrats led by Senator Elizabeth Warren introduced a bill into Congress that takes square aim at wealth inequality in America. The Ultra-Millionaire Tax Act, as it’s known, would tax those whose net worth falls between $50 million and $1 billion at a rate of 2%. Those earning $1 billion or more annually would be taxed at a 3% rate.
It’s no secret that wealthy and average Americans earn differently. The average worker draws income for the time they’re actually engaged in work, whereas the upper 1% can rely upon income from trusts, and various sources such as rental properties, real estate holdings, investments in stocks and other securities, and interest on other holdings to name a few. The richest taxpayers also tend to enjoy the benefits of generational wealth— wealth that is passed down from one generation to the next in the form of inheritances.
The way the U.S. economy is currently structured, the ultra-rich are on track to continue gaining wealth. The proposed wealth tax sees this as an opportunity to raise government revenues by requiring the wealthiest Americans to assume a greater financial responsibility to society. As proposed, the tax dollars raised would provide relief to workers such as teachers, nurses, and those whose lives and work have been so profoundly disrupted by the COVID-19 pandemic, by transferring money from the richest to those less fortunate. While many have been struggling during the pandemic, billionaires have added an estimated $1.3 trillion to their collective worth. The wealth tax proposed by Warren et al. would take a significant step toward reducing this gap.
Why Supporters Like the Tax
The Warren plan has received support from Progressives such as Bernie Sanders, as well as from some members of the GOP. Supporters believe the law will reduce the wealth gap between the richest and poorest Americans, reduce the amount of legacy wealth passed on through inheritance, and will generate a significant amount of revenue for the nation. For example, supporters of the law note that the wealthiest 1% of families have as much economic power as the bottom 90% of working Americans. Supporters hope to shrink this gap, as well as to place limits on inherited wealth.
Why Opponents Dislike the Tax
Critics of the Warren plan have called it “political grandstanding” and have expressed fears that any new taxation could harm smaller businesses and their employees. Also, while some among the GOP have supported the tax, many remain wary of any increased taxation, fearing it could hinder economic growth.
How Individual States Are Addressing the Wealth Gap
Some states are taking matters into their own hands and are pushing forward with millionaire tax bills of their own. After six failed attempts, the New Jersey state legislature and governor Murphy came to an agreement that includes a tax increase on NJ residents making over $1 million annually. Under the new law, New Jersey’s top tax bracket would now begin at $1 million annual earnings, rather than $5 million. For those earning between $1 and $5 million annually, this translates into a tax increase of between 8.97% and 10.75%
Since 2018 Massachusetts has seemed poised to enact a wealth tax of its own, but the effort has been stymied by the state’s Supreme Judicial Court, which declared it unconstitutional. But the state is once again on track to address wealth inequality, as the procedural obstacles of the earlier bill have been removed from the current version of the bill.
New York is also moving forward on a bill to address the wealth gap. The New York state Senate and Assembly recently passed a $212 billion budget proposal after lawmakers reached a deal with Governor Cuomo. The new law would increase taxes on the wealthiest residents and corporations with a goal of generating $4 billion in additional revenue for the state. The law would also legalize mobile sports betting, adding another $99 million in revenue for this fiscal year and up to $500 million annually in the future.
At Moskowitz LLP, we understand that coping with new tax laws and regulations can be confusing. Our skilled professionals can help ensure that you remain compliant with all laws and regulations, without paying a penny more than you need to in tax.
Have questions about the new tax law? Or need guidance on a specific tax question? We’re here to help. Contact Moskowitz LLP today!