What Is the Ultra-Millionaire Tax Act?

The Ultra-Millionaire Tax Act is a legislative proposal, first introduced in March 2024, that seeks to establish an annual tax on the net worth of the wealthiest American households. The stated purpose of the bill is to address wealth inequality and generate government revenue for public investments in healthcare, education, and infrastructure. The proposal represents a shift from taxing income to taxing accumulated wealth.

Taxpayer Applicability

The proposed tax specifically targets a small fraction of the population, often referred to as the top 0.05%. The obligation to pay the tax would begin for any household, including married couples filing jointly, with a net worth exceeding $50 million. The same $50 million starting point also applies to trusts, which are common vehicles for holding wealth.

For the purpose of determining who is subject to the tax, net worth is calculated by subtracting total liabilities from the total value of a household’s assets. If this figure surpasses the $50 million mark on the last day of the calendar year, the household falls within the scope of the proposed legislation.

Determining the Tax Base

The foundation of the Ultra-Millionaire Tax is the calculation of a taxpayer’s net worth. This process involves identifying and valuing all taxable assets as of the last day of the calendar year. The scope of what constitutes an asset is broad, encompassing a wide array of financial instruments and tangible property, including stocks, bonds, and cash.

The tax base extends to less liquid holdings like real estate, interests in privately-held businesses, and retirement funds, including 401(k)s and IRAs. The valuation also captures tangible personal property, such as fine art, jewelry, and luxury vehicles. The bill requires all such assets to be appraised at their fair market value.

From the total value of these assets, taxpayers are permitted to deduct their liabilities. This includes outstanding mortgage balances, personal loans, and investment-related debt. The resulting figure establishes the final net worth upon which the tax is calculated.

Calculating the Annual Tax

The tax liability is based on a tiered structure applied to the established net worth. For households and trusts with a net worth between $50 million and $1 billion, an annual tax of 2% is applied to the value exceeding the $50 million threshold. For example, a household with a net worth of $70 million would pay a 2% tax on the $20 million that is above the initial threshold.

A second, higher tier applies to net worth that exceeds $1 billion. For these households, the proposal calls for an annual tax of at least 3% on every dollar of net worth above that amount. Some versions of the bill suggest this rate could be as high as 6%.

A challenge in this calculation is the valuation of assets that are not easily priced. Assets like private company shares or unique art pieces require specialized appraisals. The proposal grants the Internal Revenue Service (IRS) authority to develop and enforce new valuation rules to ensure these hard-to-value assets are assessed accurately.

Administration and Enforcement Provisions

The Ultra-Millionaire Tax Act includes measures to ensure compliance and prevent tax evasion. A component of the proposal is an investment in the IRS, with some versions allocating as much as $100 billion to the agency. This funding is intended to rebuild the agency’s capacity, modernize its systems, and hire personnel with expertise in complex asset valuation.

To ensure accurate reporting, the bill mandates a minimum audit rate of at least 30% of all households and trusts falling under the tax’s purview annually. The legislation also calls for systematic third-party reporting requirements to gather more information on taxpayer assets.

The proposal contains an anti-evasion rule for individuals who might try to avoid the tax by leaving the country. A 40% “exit tax” would be imposed on the net worth of any U.S. citizen who renounces their citizenship to avoid the tax, applicable to wealth over the $50 million threshold.