Quantitative analysis of a wealth tax for the United States: Exclusions and expenditures

Abstract

We use a quantitative overlapping generations model with endogenous tax avoidance and rich tax detail to analyze two major issues in the design of a wealth tax for the United States: the provision of exclusions for certain housing and business equity, and the range of government expenditure options allowed for by additional revenues. First, we find that while the exclusion for owner-occupied housing results in quantitatively insignificant macroeconomic and budgetary effects, the exclusion for privately-held noncorporate business equity results in a shift of productive activity towards that sector which can significantly undermine the revenue-raising potential of the tax. Second, we find that the macroeconomic effects of a given wealth tax regime can vary in magnitudes of contraction or expansion depending on the type of expenditures that are assumed to be financed by the additional revenues.