Arguments for and against wealth taxes regularly crop up in global policy discussions. Spain’s wealth tax has proven to be a significant source of revenue, raising questions about its potential applicability in other countries, including the United States.
As governments around the world face budget deficits and rising inequality, Spain’s experience with a wealth tax on the richest 0.5 percent of the population provides a compelling case study.
Economic inequality has been a political issue in the United States for decades, and it is getting additional attention this election year. While implementing a wealth tax is not a new idea, the details of how it would work have always been theoretical. The Spanish wealth tax model offers a tangible, real-world example that could be applied to the U.S. economy.
The progressive wealth tax in Spain was originally introduced in 1977, abolished in 2008 and reintroduced in 2011. Tax rates are based on the individual’s net worth and the tax is levied annually, although there are some regional differences.
The tax base includes the value of the individual’s assets minus all liabilities, with some exceptions for high-value assets, family businesses and primary residences below certain thresholds – as well as intellectual property. The lowest rate of 1.7% applies to Spanish taxpayers whose net worth after exemptions is around $2 million.
Spain estimates the tax raises €1.85 billion ($2.1 billion) annually, but the Tax Justice Network estimates that without the generous exemptions provided for in the Spanish policy, the figure could be closer to €10.7 billion. Models applying the Spanish wealth tax to the global economy suggest that a similar policy could raise more than $2 trillion worldwide and lead to an average increase in government budgets of 7 percent per year.
But how could a similar tax be introduced in the United States, where the richest 0.1 percent of the wealthy control around $20 trillion in assets? Even applying the lowest tax rate of the Spanish model would mean an annual tax increase of $340 billion.
That amount would be equivalent to a 7% increase in federal tax revenues, which were about $4.4 trillion in 2023 – and provide significant funds for public services or debt reduction. In 2022, the last year for which complete data are available, the federal government spent about $1.2 trillion on social programs.
Reserving the revenue from the wealth tax for social programs would mean an immediate increase in funding of almost 25 percent. Doing the same for debt reduction would reduce the national debt – which stands at around $35 trillion – by just under one percent each year.
Opponents of a wealth tax often worry about wealth mobility, or the idea that the rich will leave their country if they are taxed. But an exit tax on moving wealth abroad and phasing it in in other countries could help solve this problem. The key will be to simultaneously tax the export of wealth and coordinate with other countries to reduce the number of wealth tax-free havens.
From a practical perspective, political support for plans such as those called for by Brazilian President Luis Inácio Lula da Silva at the G20 summit in July can help level the playing field and limit the number of jurisdictions that do not impose any kind of wealth tax.
By taxing the wealthiest citizens more heavily, the government could redistribute resources more effectively, thereby reducing wealth inequality. The richest Americans often pay lower effective tax rates than middle earners. Capital gains and income tax policies are losing the battle against estate planning and tax strategies that minimize the tax burden on the income side.
However, there are two obstacles to implementing a Spanish-style wealth tax in the United States: potential legal challenges and political feasibility.
A US wealth tax would face significant legal challenges. The US Supreme Court’s decision in Moore v. United States has not slammed the door on such a policy. But any wealth tax would have to circumvent the constitutional requirement that direct taxes be apportioned among the states according to their population size. That is practically a death sentence for a wealth tax.
Political feasibility is also crucial, as a wealth tax would anger both wealthy individuals and those who oppose higher taxes for ideological or political reasons. The general concept of “taxing the rich” has proven politically popular, but whether an actual tax proposal would be as well is less certain.
For the introduction of a Spanish-style wealth tax to succeed in the United States, a compelling political argument is needed that clearly explains how and who will benefit from the increased tax revenue. While the prospect of money for the federal coffers may be attractive to some, and curbing wealth inequality may be attractive to others, far more low- and middle-income earners may fear that an influx of money into the government would do them little good.
To gain broad support, policymakers need to link increased government revenues to tangible improvements in public services that make everyday life easier for most people. This includes proposals for future domestic spending and retrospective analyses of experiences such as those in Spain.
Without this narrative, the wealth tax could be dismissed as just one proposal among many that offers little benefit to the average taxpayer.
Andrew Leahey is a tax and technology attorney, principal at Hunter Creek Consulting, and adjunct professor at Drexel Kline School of Law. Follow him on Mastodon at @[email protected]
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