Democrats Propose Taxing Americans on How Wealthy They Are Compared to Median Households

Rep. Rashida Tlaib (D-Mich.) speaks during a press conference at the Capitol in Washington on July 15, 2019. Brendan Smialowski/AFP/Getty Images

Democrat lawmakers proposed a bill Wednesday seeking to impose taxes of up to 8 percent on the fortunes of ultra-wealthy American households.

“The Oppose Limitless Inequality Growth and Reverse Community Harms (OLIGARCH) Act to tax extreme wealth, reduce inequality, and combat the threat to democracy posed by aristocracy,” said a July 26 press release. Introduced by Representatives Barbara Lee (D-Calif.), Summer Lee (D-Pa.), Jamaal Bowman (D-N.Y.), and Rashida Tlaib (D-Mich.), the OLIGARCH Act proposes taxing anywhere from 2 to 8 percent of the wealth held by the ultra-rich annually.

“Inequality in the United States is worse in 2023 than it was during the Gilded Age,” said Barbara Lee.

“It is unacceptable that millions of hardworking people remain impoverished, while the top 0.1 percent hold over 20 percent of the nation’s wealth.”

According to the proposal, households having 1,000 to 10,000 times the median American household wealth will be charged a 2 percent tax. According to the U.S. Census Bureau (pdf), the median U.S. household wealth in 2020 was $140,800.

For households with wealth 10,000 to 100,000 times the median household wealth, the tax will rise to 4 percent. The tax increases to 6 percent for households with 100,000 to one million times the median wealth. For households with over one million times the wealth, a tax of 8 percent will be charged.

The bill also outlines measures to combat tax evasion, including a provision that households covered under the OLIGARCH Act taxes have a 30 percent audit rate. Any “substantial valuation understatements’' will attract penalties.

“The OLIGARCH Act is the solution we need to close the exorbitant wealth gap in America and create a tax system where everyone pays their fair share,” Lee said.

“This level of wealth is not just a source of economic injustice, but a major threat to democracy: the richest 400 people in the U.S. have 22,000 times the political power of the average American.”

Wealth Flight

While some Democrats argue that taxing the wealth of rich people is justified as it serves the needs of the poor, experts have warned against the repercussions.

A research paper (pdf) published in September 2022 said that any wealth taxes that “eat” the rich by taxing their fortunes could “lead to poverty.”

Taxing the wealth can make saving become less attractive, potentially forcing wealthy taxpayers to consume a bigger portion of their fortunes rather than put that money into investments, it warns.

In Europe, many nations that implemented wealth taxes have eliminated it. For instance, France imposed a wealth tax in 1989. This led to “considerable tax evasion” which forced the country to eliminate the tax in 2017.

“It has been estimated that 510 wealthy households left the country each year over a 33-year period. The migration of capital was evaluated at between 143 billion and 200 billion euros (constant 2015 euros).”

Sweden abolished its wealth tax in 2006. One of the criticisms of the tax was that it “spurred tax avoidance and evasion, especially in the form of capital flight to offshore tax havens.”

A similar situation has played out in California. A recent study by real estate service MyEListing calculates that the state has lost over $340 million in annual tax income due to an exodus of its wealthiest residents. California has the highest personal income tax rate in the United States at 13.3 percent.

“Despite its numerous attractions, from the booming tech industry and world-class universities to beautiful landscapes and cultural richness, California’s high personal income tax rates seem discouraging for many high-wealth individuals,” the study said. “This, coupled with the state’s high cost of living, will likely fuel a wealth migration out of California.”

The departure of wealthy individuals can depress the luxury and commercial real estate market as well as negatively affect job creation.

Raising Taxes For All Classes

Tax-the-rich schemes may also soon end up being applied to all citizens irrespective of their wealth. In a November 2021 commentary for The Epoch Times, Stephen Moore, a senior fellow at the Heritage Foundation, warned that “higher tax rates on the rich are always unfailingly gateways to taxing everyone else.”

In 1913, the tax for Americans with incomes more than $3,000 ($83,000 in November 2021) was only 1 percent. The highest tax rate was charged on those making $500,000 or more ($13.8 million in November 2021) which was 7 percent. At the time, Congress had promised that tax rates would never exceed 10 percent.

However, “a few short years later, the highest rate was 70 percent, and almost everyone got socked with this new income tax to be paid by the rich.”

Similarly, “The Alternative Minimum Tax in the late 1960s was aimed at a handful of multimillionaires. However, it wasn’t long before this tax gadget was squeezing millions of people.”