Spain’s Wealth Tax Model Could Address Inequality in US Policy

Arguments for and against wealth taxes regularly appear in global policy discussions. Spain’s wealth tax has proven to be a significant source of revenue, which raises questions of its potential applicability in other countries—including the US.

As governments around the world face budget shortfalls and rising inequality, Spain’s experience with a wealth tax on the top 0.5% wealthiest individuals is a compelling case study.

Economic disparity has been a policy talking point in the US for decades and is getting extra attention this election year. Though implementing a wealth tax isn’t a new idea, the specifics of how it might work have always been theoretical. The Spanish wealth tax model provides a tangible real-world example that could be applied to the US economy.

Spain’s progressive wealth tax was originally introduced in 1977, abolished in 2008, and reintroduced in 2011. The tax rates depend on individuals’ net wealth, and the tax is levied annually, with some regional variation.

The tax base includes the value of the individual’s assets, minus any liabilities, with some exemptions for high-value assets, family businesses, and primary residences that fall below specific thresholds—as well as intellectual property. The lowest rate of 1.7% applies to Spanish taxpayers whose net worth is about $2 million after exemptions.

Spain estimates the tax raises 1.85 billion euros ($2.1 billion) annually, but the Tax Justice Network suggests that, absent permissive exemptions present in the Spanish policy, the figure could be closer to 10.7 billion euros. Models applying the Spanish wealth tax to the world economy suggest a similar policy could raise more than $2 trillion globally and lead to an average 7% increase in state budgets each year.

But how could a similar tax be implemented in the US, where the top 0.1% of wealth holders control approximately $20 trillion in assets? Applying even the lowest rate from the Spanish model would mean a $340 billion annual tax revenue increase.

That amount would constitute a 7% increase in federal tax revenue, which was approximately $4.4 trillion in 2023—providing substantial funds for public services or debt reduction. In 2022, the last year for which complete data is available, the federal government spent about $1.2 trillion on welfare programs.

Earmarking wealth tax revenue for welfare programs would mean an immediate increase in funding by nearly 25%. Doing the same for debt reduction would lead to just shy of a 1% reduction of the national debt—which stands at around $35 trillion—each year.

Wealth tax opponents are often concerned about wealth mobility, or the notion that if you tax the wealthy in your country, they’ll leave. But exit taxes for relocating wealth abroad, and phased implementation alongside other jurisdictions, could help solve this issue. The key will be simultaneously placing a cost on exporting wealth and coordinating with other countries to reduce the number of wealth tax-free havens.

From a practical perspective, throwing political support behind plans such as those called for by Brazilian President Luis Inacio Lula da Silva at the July G20 meeting can help level the playing field, limiting the number of jurisdictions that don’t have a wealth tax of some stripe.

By taxing the wealthiest citizens more heavily, the government could redistribute resources more effectively, which could help reduce wealth inequality. The wealthiest Americans often pay lower effective tax rates than middle-income earners. Capital gains and income tax policies are losing the battle against estate planning and tax strategies that minimize tax burdens on the income side.

However, there are two categories of obstacles to the implementation of a Spanish-style wealth tax in the US: 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 didn’t slam the door on such a policy. But any potential wealth tax would need to find its way around the Constitution’s requirement that direct taxes be apportioned among the states in accordance with population. This is practically a death knell for a wealth tax.

Political feasibility is equally critical, as a wealth tax would rankle both wealthy individuals and those ideologically or politically opposed to higher taxes. The broad concept of “tax the rich” has proven to be popular politically, but whether an actual tax policy proposal would also be is less certain.

The success of implementing a Spanish-style wealth tax in the US would require a compelling policy story that clearly demonstrates how and who the increased tax revenue would benefit. While the prospect of generating funds for federal coffers may appeal to some, and tamping down wealth inequality may appeal to others, far more low- and middle-income individuals may fear that an influx of cash for the government would do little to help them.

To gain broad support, policymakers must articulate a connection between revenue raised and tangible improvements to public services that improve most people’s daily lives. This includes prospective domestic spending proposals and retrospective analyses of experiences, such as those in Spain.

Without this narrative, the wealth tax could be dismissed as just another proposal with little benefit for 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 @andrew@esq.social

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