The tax code increasingly rewards extreme wealth, shields it from taxation, and allows it to grow larger across generations. Because of the preferential rates and loopholes available to the very wealthy, the current tax system (while progressive overall) enables enormous amounts of wealth to be accumulated by very few—who tend to be white and male. This exacerbates racial and gender inequality, hinders economic growth and broadly shared prosperity, and sharply limits the tax revenues available to make investments in women and people of color.
But it doesn’t have to be this way. We can tax wealth more equitably and advance racial and gender equity. Policy solutions include:
Taxing Income from Wealth like Income from Work
People who live off income from their wealth (like dividends or capital gains) pay a lower top tax rate compared to income from work. For example, capital gains, which are the increases in the value of assets and investments, are subject to tax when the assets are sold, but at a top rate of 20 percent, while the top marginal rate on income from labor is 37 percent. We can raise the capital gainsrate to more fairly tax this income from wealth.
Taxes on capital gains are only due when the assets are sold. If the assets are not sold and instead are passed down to the next generation, all of the gains are wiped out for tax purposes, meaning that they are never We can end the stepped-up basis loophole and tax these gains at death.
Another option would be to tax capital gains annually, rather than only when the assets are sold, for those with very large fortunes. This would ensure the wealthiest pay some tax on the income from their wealth every year, instead of being able to avoid these taxes indefinitely. A proposal from the Biden administration is estimated to raise $361 billion over 10 years.
These proposals would advance racial and gender equity because women and people of color are less likely to own stock and other capital assets, and are more likely to derive their income from work. As a result, women and people of color are less likely to benefit from the tax code’s preferential treatment of capital gains. And revenue from these policies could be invested in women and families.
Taxing Wealth Directly Through a Wealth Tax
The federal tax system generally does not tax wealth—accumulated assets and investments—only income from wealth. This enables the rich to accumulate huge amounts of wealth, and furthers race and gender wealth gaps.
A federal wealth tax would directly tax the wealth owned by the very richest, every year. This tax would apply to only the largest fortunes, and would be calculated based on net worth (the total value of assets minus any debts). One proposal to tax wealth over $50 million annually is estimated to raise at least $1.9 trillion over ten years.
A wealth tax would advance racial and gender equity because the highest amounts of wealth are disproportionately owned by white men. In addition to the significant gender and racial wealth gaps (see above), the 400 richest American billionaires have more total wealth than all 10 million Black American households combined. This means that wealthy white men primarily benefit from the failure to directly tax wealth. Revenues raised by directly taxing wealth, moreover, could support public investments that disproportionately help women and communities of color.
Taxing Intergenerational Transfers of Wealth
The estate tax, which is taken out of an estate when someone dies, is designed to break up large dynastic fortunes. The estate tax rate has been lowered over the years, while the exemptions were increased. In 2022, estates of $12.2 million ($24.4 million for married couples) are exempt from the estate tax, and many wealthy families take advantage of loopholes and tax shelters to reduce their estate tax bills as much as possible. We could strengthen the estate taxby returning the rates and exemption amounts to the levels that were in place in 2009, and targeting some of the most egregious loopholes. One proposal would raise an estimated $220 billion over ten years, which could be invested in women and families.
Alternatively, we could implement an inheritance tax, which would tax those who inherit large sums of money, rather than the estates of the deceased. This would recognize that inheritance often provides additional, unfair advantages to the wealthy and white, and enables families to accumulate and hoard wealth across generations.
More equitably taxing intergenerational transfers of wealth would advance racial equity in the tax code. White families are twice as likely to receive an inheritance as Black families, and that inheritance is nearly three times as large as Black families’, such that white families benefit more from preferential tax treatment of inheritance. Further, revenues from a more robust estate tax or inheritance tax could be invested in supports for women and communities of color.
These policies should be put together in a comprehensive package. Proposals must be carefully designed and coordinated to avoid creating more loopholes or incentivizing further wealth hoarding at the top. Policymakers should ensure that more tax data by gender and race (and other demographic characteristics) is made available, and consider the racial and gender implications of the tax policies they consider.