Wealth Tax

A wealth tax starts from a balance sheet rather than an income statement. On a set valuation date each year, the taxpayer adds up the market value of what they own: investments, bank balances, homes, business stakes and, depending on the design, retirement accounts and valuables. Debts such as mortgages are subtracted to reach net worth, the exemption is taken off, and a small percentage of the rest is due. Anything already given away, to heirs or to charity through a vehicle such as a donor-advised fund, is no longer part of the base.

Because the tax falls on the stock of wealth rather than the flow of income, it is owed in years when assets lose value as well as years when they soar, and it must be paid in cash even when the wealth is tied up in a home or a private company. Real-world designs therefore lean heavily on valuation rules, discounts for particular assets and generous thresholds.

Most countries, the United States included, already tax wealth, just not all of it every year. Property tax is the closest cousin: it is charged annually, but on one asset, real estate, at its assessed value with no deduction for the mortgage. Estate and inheritance taxes reach everything a person owns, but only once, at death. Capital gains tax reaches growth, but only when an asset is sold.

That last gap is at the heart of the debate. Shares that are never sold can grow for decades untaxed, and at death a step-up in basis erases the gain for heirs, so a fortune held in appreciated stock may never meet an income tax at all. The table below sets the main taxes on wealth side by side.

No. Nothing in federal law taxes net worth, and no state levies a broad annual tax on it in 2026. Part of the obstacle is constitutional. Article I requires any “direct” tax to be apportioned among the states by population, and the Sixteenth Amendment lifted that rule only for “taxes on incomes.” Whether a tax on holdings is a direct tax has never been settled. In Moore v. United States, decided June 20, 2024, the Supreme Court upheld a one-time tax on undistributed foreign corporate earnings but noted that its analysis did not address taxes on holdings, wealth or net worth.

Proposals keep appearing. The Ultra-Millionaire Tax Act, introduced in the Senate in 2021, would have charged 2% a year on net worth between $50 million and $1 billion and 3% above that, paired with a 40% exit tax on wealthy people giving up citizenship. It was not enacted. Other plans would tax the very wealthy on unrealized gains each year, which is an income tax on growth rather than a tax on the balance itself.

States have moved on income instead. Washington, for example, has enacted a 9.9% tax on individual income over $1,000,000 starting in 2028, which is an income tax, not a wealth tax.

Several European countries have dropped their wealth taxes over the decades, and those that remain differ widely in thresholds, rates and what counts as wealth. Rates look low next to income tax because they apply to the whole balance: top rates in the examples below run from 1.1% in Norway to 3.5% on Spain’s state scale. Canada, the United Kingdom and Australia have no annual tax on net worth. The best-known current examples:

The clearest way to judge a wealth tax is to convert it into a tax on returns. A 1% annual charge sounds small, but for an investor earning 5% a year it takes a fifth of the return before any income tax, and in a flat or falling year it takes more than all of it. It works as a fixed tax drag that doesn’t shrink when returns do, and the formula below does the conversion.

For almost every household, the wealth-related taxes that matter are income tax on investment returns, local property tax and, rarely, estate tax. How your net worth grows, and how much of it sits in pre-tax accounts, matters far more to a plan. The debate over taxing the very wealthy comes down to a handful of arguments: