Elizabeth Warren's proposed wealth tax—an annual levy on the total value of one's assets, not income—has drawn a lot of attention. The senator's claim that her proposal would cost “ultramillionaires” only an annual 2% and billionaires an annual 6% wildly understates the truth. Wealthy people don't maintain bank accounts with millions or billions of dollars of liquid cash; they invest their assets. Those hit with the wealth tax would have to sell assets each year to pay it, subjecting them to income tax as well. The actual cost would often be several times greater than 2% or 6%.
Ms. Warren has proposed a dramatic increase in the federal capital-gains tax rate, along with taxing current appreciation of asset values for wealthy taxpayers. She has proposed raising the current top long-term capital-gains rate from 20% to 39.6%, leaving in place the current additional investment tax of 3.8%, and assessing an additional 14.8% tax for taxpayers with net investment income over $400,000. That adds up to a total federal tax rate of 58.2%, more than double the current maximum 23.8% on long-term capital gains. For a California taxpayer who would also be required to pay the state's 13.3% income tax, the total state and federal income taxes to raise the funds to pay Ms. Warren's 6% federal wealth tax would be 71.5%.
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