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What is a Wealth Tax?

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What is a Wealth Tax?

You’ve probably heard the term “wealth tax” in the news over the past few years. In discussions leading up to the recent federal election, some candidates have often explained the pros and cons of such a tax, which they propose to impose on the wealthiest Americans. Let’s take a closer look at what taxing the wealthy means for American taxpayers.

What is the wealth tax?

Wealth taxes – also commonly referred to as capital, equity or net wealth taxes – are government taxes on taxpayers’ net wealth. You can calculate your net wealth by subtracting debts from assets. Some assets in this tax calculation may include:

Cash Real Estate Real Estate Auto Pension Plan Trust Assets Stocks Jewelry Painting Stocks Stocks and Other Investments

Many of these assets are typically held by taxpayers with higher net wealth or higher incomes, hence the name wealth tax.

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Which countries have property taxes?

Currently, these European countries tax the wealthy:

On the other hand, these countries have recently abolished their wealth tax:

Austria Denmark Finland Germany Iceland Luxembourg

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These countries have recently abandoned the tax, mainly because of tax enforcement issues.

Wealth taxes vary according to each country’s legislation. For example, in France, wealth tax only applies to real estate with a net value of more than $1.5 million, is taxed at 0.5% to 1.5%, and limits the total amount collected. In Norway, a wealth tax applies to a person’s total global net wealth over USD 172,000 at a rate of 0.85%. By contrast, in Spain, the wealth tax applies to those with assets over $775,000, starting at 0.2%.

How will I calculate my wealth tax?

If the U.S. were to enact a federal wealth tax, proponents’ proposals suggest that the tax would apply only to the top 0.1 percent of Americans whose wealth exceeds an established threshold. For example, some have suggested that the wealth tax should only apply to taxpayers with a net worth of more than $32 million.

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Here’s an example of the income difference between a government income tax and a hypothetical wealth tax: A single taxpayer with $1 million in taxable income would pay about $334,427 in tax at the individual’s current tax rate. If a wealth tax were imposed, the same taxpayer with $50 million in net worth would pay about $1 million (or 2% of $50 million) plus $334,000 between income and wealth taxes.

Are there property taxes in the US?

While the U.S. currently uses a federal income tax system rather than a wealth tax, most parts of the country do have property taxes — a type of wealth tax — but these are levied by state and local governments.

The federal estate tax is also used to tax assets and property belonging to the estate of the deceased, which makes it a wealth tax. Meanwhile, estate tax is only paid by estates above a certain level (in millions of dollars), so most estates do not pay this tax.

The debate over the effectiveness of the U.S. wealth tax is likely to continue across the country.

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