As the April tax filing deadline approaches, millions of Americans are preparing their returns and anticipating possible refunds. According to experts, this federal tax refund represents a significant financial boost. Notably, Florida, Texas, Wyoming, Nevada, and Louisiana are the five states with the highest average refunds, as identified by a report from Upgraded Points, based on data from the Internal Revenue Service (IRS).
In addition to differences by state, tax refunds vary significantly depending on income level. As the report notes, higher-income households receive larger refunds on average, but a smaller proportion of them receive one. For example, IRS data show that among taxpayers earning over $200,000, the average refund rose to $17,668. “However, only 35% of returns received a refund, and nearly a third of taxpayers with overpayments chose to apply it to the following year’s taxes,” the report adds.
Wealth tax: a theoretical exercise
However, advisors acknowledge that for HNWI and UHNWI profiles, tax filing is somewhat different, as they manage complex tax structures that must be considered in their financial planning and investments. Given that the U.S. does not have a wealth tax—that is, a tax on the value of assets net of liabilities—tax filing becomes a key moment. But what would be the implications of implementing one?
According to an analysis conducted by the Urban Institute & Brookings Institution, if all assets above $50 million ($25 million for unmarried taxpayers) were subject to a 1% tax, it would raise close to $2 trillion over a 10-year period, with approximately 86% of the burden falling on families in the top 1% of earners.
Additionally, the analysis indicates that increasing the tax rate to 2% for assets above $100 million ($50 million for unmarried taxpayers) or lowering the threshold to $30 million ($15 million) would increase the estimated revenue by approximately an additional $1 trillion. “Revenue estimates decrease by around 45% if the tax base excludes pension benefits, the value of housing above $1 million, and businesses in which the owner actively participates,” they note.
Political dimension
This is a theoretical exercise because, as seen this year, the Trump Administration has no intention of taxing high-net-worth individuals; in fact, its policy moves in the opposite direction: reducing taxes and the fiscal burden on large fortunes. By contrast, looking back, during the 2020 presidential campaign, several candidates proposed broad wealth taxes aimed at the wealthiest households.
“The goals of those proposals were primarily to address wealth inequality and to fund the expansion and creation of new spending programs and tax credits. Although Biden proposed other approaches to achieve those goals and it is unlikely that the Trump administration will raise taxes on the very wealthy, advocates of wealth taxes have continued to push for their adoption: Zucman has proposed a global wealth tax, while legislation has been considered in several states. In the future, interest in wealth taxes could resurface if federal debt and wealth inequality continue to rise,” explain the authors of the cited report.
The document suggests that when policymakers debate these proposals, they should consider four key factors: the tax base and how it may affect individuals’ investment decisions and their ability to avoid the tax; asset valuation and how easily taxpayers could avoid or evade the tax by undervaluing their assets; the threshold and rate of the wealth tax, as well as its interaction with the treatment of personal income tax applied to capital income; and the tax unit and opportunities for individuals to minimize their tax burden by transferring assets to family members.
