Brian Galle (Georgetown; Google Scholar), David Gamage (Indiana-Maurer; Google Scholar) & Darien Shanske (UC-Davis; Google Scholar), Fixing the Valuation Problem: A Possible Methodology for Taxing Excessive Wealth, 72 Duke L.J. ___ (2022):
Current reporting primarily based on leaked tax returns of the ultra-rich confirms what consultants have lengthy suspected: for the wealthiest Individuals, paying taxes is optionally available. A number of the nation’s richest have reported annual incomes that might be modest for a college instructor, even because the hare of wealth held by the highest .1% is at its highest in practically a century.
Consultants have lengthy understood that one downside sits on the root explanation for lots of the tax system’s failures to succeed in the very wealthy: valuation. As a result of it’s troublesome to appraise complicated or distinctive belongings, trendy tax programs as a substitute wait till an asset is offered to impose tax. Together with an American rule that wipes away revenue tax on inherited earnings, and a extremely porous property tax system, this “realization” method has deeply undermined U.S. efforts to tax excessive wealth.
This Article proposes a brand new method: governments ought to take funds from the rich in the type of notional fairness pursuits, which we name “ULTRAs,” for unliquidated tax reserve accounts. Merely put, the ULTRA is economically equal to a authorities declare on a portion of the inventory of a enterprise, however as a result of it’s “notional” it doesn’t present the tax authority with any governance rights or minority shareholders protections. As a result of the ULTRA represents a set share of an asset, no matter that asset’s price, it doesn’t require valuation.
We clarify how the ULTRA proposal builds on present elements already in use by wealth taxes round the globe, in addition to prior tutorial proposals. By combining choose options from predecessors, the ULTRA addresses a lot of the shortcomings these instruments face individually. For instance, in contrast to the “retrospective” system proposed by the economists Alan Auerbach and David Bradford, the ULTRA answer ensures that taxpayers who anticipate to outperform the market with their investments will nonetheless haven’t any incentive to delay paying tax.
We then set out a wide range of methods during which ULTRAs can be utilized to shut the loopholes that rich taxpayers use to reduce their tax burdens. Most clearly, our proposal helps to make an annual tax on excessive wealth viable, and we element how the ULTRA options in our proposal, developed extra comprehensively elsewhere, for a state-level wealth tax. ULTRAs may also be used to reform the revenue tax system, most ambitiously as in the latest Billionaires Earnings Tax proposal to get rid of the “realization” method for the very wealthy. We additionally present that valuation is at the core of many different frequent income-tax dodges, and element ways in which ULTRAs can be utilized to curtail them.
https://taxprof.typepad.com/taxprof_blog/2022/04/galle-gamage-shanske-solving-the-valuation-challenge-a-feasible-method-for-taxing-extreme-wealth.html
