Brian Galle (Georgetown; Google Scholar) presents Fixing the Valuation Problem: The ULTRA Technique for Taxing Excessive Wealth, 72 Duke L.J. ___ (2023) (with David Gamage (Indiana-Maurer; Google Scholar) & Darien Shanske (UC-Davis; Google Scholar)) (reviewed by Younger Ran (Christine) Kim (Cardozo; Google Scholar) right here) at Columbia immediately as a part of its Davis Polk & Wardwell Tax Coverage Colloquium hosted by David Schizer:

Latest reporting based mostly on leaked tax returns of the ultra-rich confirms what consultants have lengthy suspected: for the wealthiest People, paying taxes is usually optionally available. A few of the nation’s richest have reported annual incomes that might be modest for a college trainer, even because the share of wealth held by the highest .1% is at its highest in practically a century.

Specialists have lengthy understood that one drawback sits on the root reason for most of the tax system’s failures to achieve the very wealthy: valuation. As a result of it’s tough to appraise advanced or distinctive property, fashionable tax programs as an alternative wait till an asset is bought to impose tax. Together with an American rule that wipes away earnings tax on inherited earnings, and a extremely porous property tax system, this “realization” method has deeply undermined U.S. efforts to tax excessive wealth.

This Article proposes a brand new method: governments ought to take funds from the rich within the type of notional fairness pursuits, which we name “ULTRAs,” for unliquidated tax reserve accounts. 

Merely put, the ULTRA is economically equal to a authorities declare on a portion of the inventory of a enterprise, however as a result of it’s “notional” it doesn’t present the tax authority with any governance rights or minority shareholders protections. As a result of the ULTRA represents a set share of an asset, no matter that asset’s value, it doesn’t require valuation.

We clarify how the ULTRA proposal builds on present parts already in use by wealth taxes across the globe, in addition to prior educational proposals. By combining choose options from predecessors, the ULTRA addresses most of the shortcomings these instruments face individually. For instance, in contrast to the “retrospective” system proposed by the economists Alan Auerbach and David Bradford, the ULTRA answer ensures that taxpayers who anticipate to outperform the market with their investments will nonetheless haven’t any incentive to delay paying tax.

We then set out quite a lot of methods through which ULTRAs can be utilized to shut the loopholes that rich taxpayers use to attenuate their tax burdens. Most clearly, our proposal helps to make an annual tax on excessive wealth viable, and we element how the ULTRA options in our proposal, developed extra comprehensively elsewhere, for a state-level wealth tax. ULTRAs may also be used to reform the earnings tax system, most ambitiously as within the current Billionaires Revenue Tax proposal to remove the “realization” method for the very wealthy. We additionally present that valuation is on the core of many different frequent income-tax dodges, and element ways in which ULTRAs can be utilized to curtail them.

https://taxprof.typepad.com/taxprof_blog/2023/02/galle-presents-solving-the-valuation-challenge-the-ultra-method-of-taxing-extreme-wealth-today-at-co.html