A New Way to Tax Wealth

Noah Cicurel

Associate Editor

Loyola University Chicago School of Law, JD 2022

With Democratic control over the House, Senate, and Presidency for the first time since 2011, President Biden has been ambitious in his efforts to reinvigorate the economy, signing into law a $1.9 trillion economic aid package with plans to increase access to affordable housing and a $3 trillion investment in infrastructure. To finance their legislative agenda, Democrats have several initiatives which would mostly raise taxes for the wealthiest Americans such as Elizabeth Warren’s proposed wealth tax or increasing the maximum income tax rate back to 39.6%, as it was while President Bush was in office.

Another major tax reform worth examining comes from Senator Wyden, who has repeatedly introduced legislation which seeks to establish an annual tax for the highest-earning taxpayers on capital assets (such as a home or stocks in a company) or “mark-to-market”. Imposing mark-to-market would be a significant change to the U.S. tax code but as the new chairman of the Senate Finance Committee, Senator Wyden may be able to bring his proposal to fruition.

Current tax system

Currently, income from wages and salaries are normally taxed when they are earned. However, capital gains, the profit from selling a capital asset, are not taxed as their value grows. Instead, under the current tax code, capital gains are not taxed until the asset is sold. This effectively incentivizes taxpayers to hold onto their capital assets in order to minimize the potential tax liability.

Like some other Democrats, Senator Wyden’s proposal targets the wealthiest one percent of taxpayers, who have a disproportionate share of total capital assets (mostly through stocks and bonds), to pay their fair share of taxes. While the top tax rate is thirty seven percent, this is only for income through wages and salaries. The maximum tax rate for capital gains and dividends is only twenty percent. For these wealthy individuals, an average of forty one percent of their income derives from capital income.

Ultimately, not only is a larger portion of the annual income of the top one percent taxed at the lower, capital income rate, but large portions of their assets may go untaxed indefinitely as capital assets. Some estimates put the unrealized capital gains at upwards of thirty four percent of their total assets.


In its current form, Senator Wyden’s mark-to-market plan would generally apply to individuals with incomes over $1 million and assets over $10 million. The system “would require taxpayers to pay tax annually on any unrealized gain or take a deduction for any unrealized loss from tradable assets. To calculate the tax due on gains from non-tradable assets like investment real estate, closely-held businesses, and valuable collectibles, anti-deferral accounting would use a lookback rule upon realization. The resulting lookback charge would tax the gain in a way that diminishes the benefit of deferring tax until sale.” Essentially, rather than only apply a tax when the capital asset is sold, Wyden’s proposal sets an annual tax as the asset gains value. Additionally, special rules would apply for specific assets such as personal residences, family farms, and some retirement accounts.

Those in opposition to Senator Wyden’s proposal would argue that although capital assets may have gained value, these gains have not actually manifested to the taxpayer’s benefit or impacted their “cash on hand”. The proposal would have a significant impact on investors who are asset-rich but cash-poor, and may force them to sell these appreciating assets.

However, corporations and wealthy individuals who would be subject to the new tax often already experience the effect of a gain on their assets even without selling it. For example, as opposed to traditional financing where lending is determined by examining the company’s credit, when a company utilizes asset financing, lenders evaluate the size of a loan according to the value of the pledged assets used as collateral.

Reform not without challenges

Senator Wyden’s plan would likely generate billions in tax revenue, but it is not without its own issues. The proposal would force individuals to evaluate their non-liquid assets which may require appraisal for property like artwork or jewelry. Also, it remains uncertain how the system would handle capital losses which would normally be used to offset gains and lessen the tax liability.

Ultimately, it remains unclear whether Senator Wyden’s initiative will become a reality with Democrat’s razor-thin majority.