Supporters of the Billionaire Tax Now coalition held signs in Los Angeles on 27 April 2026, as California voters prepare to decide on a one-time 5% tax on fortunes exceeding $1bn. However, a new analysis suggests that rather than inventing new wealth taxes, the US should focus on closing loopholes in the existing tax system to raise revenue from the super-rich.
Wealth tax faces practical and political hurdles
The proposal in California is part of a broader trend to directly tax billionaires, but such taxes have been largely abandoned across industrialized nations. In 2024, only three OECD countries—Norway, Spain, and Switzerland—collected revenue from recurrent wealth taxes, down from 12 in 1990. None raised more than 1% of GDP except Switzerland. According to an OECD study, “from both an efficiency and equity perspective, there are limited arguments for having a net wealth tax in addition to broad-based personal capital income taxes and well-designed inheritance and gift taxes.”
Practical problems include valuing private businesses, taxing illiquid assets, encouraging capital flight, and discouraging entrepreneurship. Wealth taxes also face criticism as double taxation on savings from already-taxed income.
Closing loopholes could raise billions
The analysis notes that the richest 1% of Americans paid about 31.5% in federal taxes and 7.2% in state and local taxes in 2024—over eight percentage points less than at the turn of the century. Since the top 1% report over $3tn in adjusted gross income, closing that gap could yield nearly $300bn annually. A Yale Budget Lab study found effective tax rates on the top 1% range from 45% to just 3%, depending on income source.
Estate tax reform offers a tested path
The estate tax has been severely weakened: in 1972, 6.5% of decedents paid it; by 2021, less than 0.1%. Revenue fell from 0.4% to 0.08% of GDP. Restoring rates and exemptions to 2000 levels, cutting breaks on assets like life insurance, and eliminating the step-up basis for unrealized capital gains could raise substantial revenue. Converting to an inheritance tax, as in most OECD countries, would address double taxation concerns.
Other fixes: capital gains, corporate tax, and enforcement
Raising capital gains taxes—currently capped at 20%—closer to the 37% top rate on labor income would reduce incentives to reclassify wages. Restoring the corporate tax rate from 21% to pre-Trump levels of 35% and ensuring large companies are taxed as corporations would also help. Additionally, eliminating the “tax gap” of uncollected revenue could yield $7.5tn from 2020 to 2029, according to an IRS-based study.
While political challenges remain, the analysis concludes that tweaking the existing system is more efficient than new wealth taxes. “It may not feel as satisfying as going after Musk’s stash,” the analysis states, “but closing loopholes to broaden the tax base and walking back tax cuts could raise needed money.”
