Summary
We support:
- A long-term target for federal government spending and revenues of approximately 20% of GDP, recognizing that demographic pressures may require temporarily higher levels
- Policies that restore long-term fiscal balance through a combination of spending discipline and efficient revenue generation
- A tax system that is progressive, economically efficient, and aligned with broader policy objectives
We believe:
- Rising national debt, if left unchecked, will eventually limit economic growth and the government’s ability to fund essential programs
- The most effective tax system broadens the base, minimizes distortions, and aligns incentives with socially beneficial outcomes
- New sources of revenue should focus where possible on taxing activities that impose costs on society rather than discouraging productive economic behavior
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Background
Why Debt Levels Matter
Moderate levels of national debt are manageable. The problem arises when debt grows persistently relative to the country’s ability to generate income, commonly measured by Gross Domestic Product (GDP).
As debt rises, investors may eventually demand higher interest rates to compensate for greater perceived risk. Higher rates increase the government’s borrowing costs, which in turn make deficits larger. If allowed to continue, this dynamic can become self-reinforcing and reduce the government’s ability to finance essential services, respond to recessions, or address national emergencies.
In extreme cases, governments facing unsustainable debt burdens have defaulted on their obligations or attempted to finance deficits through excessive money creation, producing high inflation.
Large and persistent government borrowing can also crowd out private investment and reduce economic growth, making the fiscal problem harder to solve over time.
We reject the view associated with Modern Monetary Theory (MMT) that deficits do not matter for a sovereign government that issues its own currency. MMT usefully reminds us that the federal government is not financially constrained in precisely the same way as a household. But that observation is sometimes used to attack a straw man. Serious economists already recognize that a sovereign currency issuer has more fiscal flexibility than a household.
The real constraints are inflation, available real resources, economic incentives, interest costs, credibility, and political discipline. In practice, MMT too easily becomes a cornucopia theory of government spending, paired with the assumption that inflation can later be controlled by taxing the rich, corporations, or other politically unpopular targets. We reject both crude household-budget analogies and the illusion that deficits do not matter.
The Policy Challenge
Addressing the long-term fiscal imbalance ultimately requires some combination of slower growth in government spending and increased government revenues. Both involve trade-offs, which makes early action particularly important. Gradual adjustments made over time are far less disruptive than abrupt changes imposed in response to a fiscal crisis.
Spending and Revenue in Context
Federal revenues have historically averaged roughly 17 to 19 percent of GDP, while federal spending has averaged closer to 20 percent, rising substantially during economic downturns and national emergencies.
Long-term projections suggest that spending on major entitlement programs, particularly Social Security, Medicare, and Medicaid, will rise as a share of GDP because of demographic change and increasing health-care costs. Without policy changes, these programs will account for a growing share of federal spending.
Our Approach
We support a long-term target of approximately 20 percent of GDP for both federal spending and revenues.
We recognize that reaching that target will be difficult in the near term because of demographic pressures. Over time, however, controlling the growth of entitlement spending, encouraging economic growth, and improving the efficiency of government can move the system toward a sustainable balance.
This does not preclude new programs. But new commitments should be financed through some combination of economic growth, reductions in other spending, or revenue increases designed to minimize harmful economic effects.
Principles of Tax Policy
CIVPAC believes that a sound tax system should:
- Remain progressive
- Minimize distortions to work, saving, investment, and entrepreneurship
- Be as simple and transparent as reasonably possible
- Reduce opportunities for special-interest influence and tax avoidance
These objectives sometimes conflict. Greater progressivity, for example, can require higher marginal rates, while efforts to encourage particular activities can make the tax code more complex. Tax policy therefore requires balancing fairness, efficiency, simplicity, and revenue needs rather than maximizing any one objective in isolation.
Broadening the Tax Base
We support simplifying the tax code by reducing or eliminating many exemptions, deductions, and credits.
A broader tax base can permit lower rates for a given level of revenue, reduce compliance costs, improve horizontal fairness among taxpayers with similar economic circumstances, and lessen incentives for political lobbying over special provisions.
Potential areas for reform include the mortgage-interest deduction and certain charitable deductions, particularly where the structure of a charitable vehicle allows donors to retain substantial control over assets while receiving immediate tax benefits.
The objective should not be to eliminate every distinction in the tax code. Some provisions serve legitimate policy purposes. But exceptions should be justified by clear public benefits rather than preserved merely because a favored constituency has become accustomed to them.
Alternative Minimum Tax
We support eliminating the Alternative Minimum Tax.
The AMT was created because taxpayers with high incomes could sometimes use exclusions, deductions, and preferences to reduce their ordinary income-tax liability dramatically. A simpler tax system with a broader base and fewer special provisions would address that problem directly and make a parallel tax system unnecessary.
Estate Tax
We support retaining the estate tax as a tool for limiting excessive intergenerational concentration of wealth while maintaining reasonable exemption levels and reducing opportunities for avoidance.
We also support measures to limit abuse, including reasonable restrictions on deductions for contributions to privately controlled charitable entities or trusts when donors or their families retain substantial influence over the assets.
The estate tax should be distinguished from proposals for an annual federal tax on accumulated wealth. Although both can increase progressivity and reduce the concentration of wealth, they present very different constitutional, administrative, and economic issues.
Wealth Tax
Advocacy for a federal wealth tax has increased in recent years. Proposals generally call for such a tax not to replace but to augment the existing system of taxation.
A wealth tax could serve two purposes. One is to finance government spending and debt obligations. The other is to reduce wealth inequality.
A wealth tax might advance those objectives, but it would also create substantial constitutional, administrative, and economic problems.
A Federal Wealth Tax Faces a Serious Constitutional Question
The Constitution gives Congress broad taxing power, but direct taxes must be apportioned among the states according to population. The Supreme Court has long treated taxes on real and personal property as direct taxes. An annual federal tax imposed on a person’s net wealth would therefore face a serious constitutional question if it were treated as a direct tax on property.
In Pollock v. Farmers’ Loan & Trust Co. (1895), the Supreme Court held that taxes on property and on income derived from property could be subject to the Constitution’s apportionment requirement. The Sixteenth Amendment later authorized unapportioned federal taxes on income, but it did not abolish the apportionment requirement for direct taxes on property.
In Moore v. United States (2024), the Supreme Court upheld a different federal tax in a deliberately narrow decision and did not decide the constitutionality of a wealth tax. A modern federal wealth tax would almost certainly be litigated, and its constitutionality remains unsettled. We believe that the broad annual wealth taxes now being proposed would likely be found unconstitutional.
Estate taxes are different. The Supreme Court has treated them as taxes on the transfer of property at death rather than taxes imposed merely because the taxpayer owns the property.
Defining Taxable Wealth Is Problematic
Wealth comes in many forms, and defining it comprehensively for tax purposes would be difficult.
A broad definition could include private equity, corporate and government bonds, currency, cryptocurrency and other digital assets, retirement accounts, life insurance, homes and commercial real estate, trusts, jewelry, precious metals, artwork, medical and educational savings accounts, patents, copyrights, rare coins, stamps, books, documents, and collectibles.
Policymakers would have to decide which of these assets were taxable and which were exempt. Would IRAs and 401(k)s be included? What about pensions controlled by employers or governments? Would family homes be taxed? Medical savings accounts? Educational savings accounts?
Those choices matter economically as well as politically. Exemptions can protect particular assets or taxpayers, but every exemption narrows the tax base, reduces revenue, and encourages taxpayers to move wealth toward favored forms. A broader base reduces those distortions but makes valuation and liquidity problems more widespread.
Identifying and Enforcing the Tax Base
Even with a clear definition of taxable wealth, identifying the assets belonging to individual taxpayers would be more difficult than identifying income.
Cash, jewelry, precious metals, digital assets, and some other forms of property can be difficult to detect. Assets held abroad can be difficult to attribute to their beneficial owners without extensive reporting requirements, beneficial-ownership rules, and international information sharing.
A workable wealth tax would therefore require extensive reporting and enforcement mechanisms. Those measures could improve compliance, but they would also increase administrative costs for government and compliance costs for affected taxpayers.
Valuing Assets Would Be Difficult
Marketable stocks and bonds are relatively easy to value. Many other assets are not.
Private homes have estimated market values but are not valued with precision until they are sold. Closely held businesses, partnerships, intellectual property, unique real estate, artwork, jewelry, historic documents, and collectibles may require professional appraisals that are costly and contestable.
The problem is especially important because a wealth tax would be imposed repeatedly. For assets without observable market prices, disputes over valuation could recur every year rather than only when an asset is sold or transferred.
Annual wealth-tax rates of 3 to 5 percent are substantially higher than much of the international experience.
A 5 percent wealth tax should not be confused with a 5 percent income-tax rate. A wealth tax is imposed each year on the stock of accumulated assets regardless of how much income those assets generate during the year, including years in which they generate little income or decline in value.
International Experience
International experience provides useful evidence.
The OECD reported that 12 member countries levied individual net wealth taxes in 1990, but only four did so in 2017. Austria, Denmark, Germany, the Netherlands, Finland, Luxembourg, and Sweden were among the countries that repealed broad individual wealth taxes.
France subsequently replaced its broad wealth tax in 2018 with a tax focused largely on real estate. Spain effectively suspended its wealth tax in 2008 through a 100 percent credit and later reinstated it.
Thus, most OECD countries that used broad individual net wealth taxes in 1990 had either abandoned or substantially narrowed them by the end of the following three decades.
Countries abolishing these taxes frequently cited administrative and compliance costs, valuation difficulties, avoidance and evasion, capital mobility, and relatively limited revenue or redistributive results.
The international record is not entirely one-way. Norway, Spain, and Switzerland continue to impose broad taxes on individual wealth, and several countries levy narrower recurring taxes on particular assets rather than comprehensive net wealth taxes.
Across OECD and European Union countries, recurrent taxes on net wealth accounted for about 0.4 percent of total tax revenue in 2024.
Where broad wealth taxes survive in Europe, rates have generally been lower than the 3-to-5 percent rates proposed in the United States, although there are important exceptions.
Norway’s 2026 combined state and municipal wealth-tax rates are generally 1.0 percent above the exemption threshold and 1.1 percent at the top.
Switzerland levies wealth taxes at the cantonal and municipal rather than federal level. Combined maximum rates vary substantially by location but generally remain below 1 percent, with current maximum rates ranging roughly from 0.1 to 0.87 percent.
Norway also abolished its inheritance tax in 2014 while retaining its annual wealth tax.
Spain is an important exception to the generally lower European rates. Its state wealth-tax schedule reaches 3.5 percent, and a complementary national Solidarity Tax on Large Fortunes ensures a minimum level of taxation on very large fortunes despite regional wealth-tax relief.
Spain also provides evidence that taxpayers respond to wealth taxation. Studies have found shifts toward exempt assets and other avoidance strategies as well as migration of wealthy taxpayers toward lower-tax regions. One study found that five years after Madrid effectively eliminated its wealth tax, its population of wealthy taxpayers had increased by about 10 percent relative to other regions.
Evidence specific to Spain’s newer national Solidarity Tax is not yet sufficient to determine whether it has produced comparable international migration or capital flight.
The international record therefore shows both that wealth taxes can be administered and that broad annual taxes on net wealth have often proved difficult enough that countries have repealed or narrowed them.
Countries retaining such taxes generally rely on detailed valuation rules, exemptions, extensive reporting, and enforcement mechanisms. Their rates are often significantly lower than those being proposed in the United States. Lower rates reduce incentives for avoidance, but they also reduce potential revenue.
Rate and Base Creep
Any new tax creates a policy question about whether future Congresses might raise its rate or broaden its base, just as they can alter other taxes.
That possibility should not be treated as inevitable. A wealth tax should be evaluated primarily at its proposed rate and threshold. But it should also be considered as a permanent addition to the federal tax system whose rates and exemptions could later be changed.
History provides reason at least to consider the possibility. The modern federal income tax began in 1913 with a 1 percent normal rate and a maximum marginal rate of 7 percent. Congress subsequently changed both its rates and its reach many times.
CIVPAC’s evaluation therefore rests primarily on a wealth tax as proposed: its constitutionality, administrability, economic effects, revenue potential, and interaction with the rest of the tax system. Nevertheless, it is reasonable to ask proponents what wealth-tax rate they would regard as too high.
Given that the estate tax has already been found constitutional, minimizes many of these administrative problems because it need be levied only once, and can accomplish many of the same purposes as an annual wealth tax, we do not find current federal wealth-tax proposals attractive.
New Sources of Revenue
If additional federal revenue is required, CIVPAC believes preference should be given where practical to taxes and fees that improve economic incentives rather than simply increasing taxes on productive activity.
Externality-Based Taxes
Some activities impose costs on people who are not directly involved in the underlying transaction. Economists refer to these costs as externalities.
Taxes can sometimes be used both to raise revenue and to encourage individuals and businesses to take those broader costs into account.
Examples include taxes on pollution, greenhouse-gas emissions, tobacco, and alcohol.
CIVPAC particularly supports a carbon tax combined with a corresponding border adjustment or tariff on the carbon content of imports. Such a tax could generate substantial revenue while creating a market incentive to reduce greenhouse-gas emissions.
Financial System Risk — “Too Big to Fail”
We support a tax on large financial institutions designed to reflect the systemic risk they impose on the economy.
The tax could rise with the size and riskiness of an institution and decline as its capital reserves increase. A financial institution could therefore reduce or eliminate its liability by reducing its scale, increasing its capital, or otherwise lowering the risk it imposes on the financial system.
This approach can align private incentives with public costs and may be more efficient than relying exclusively on direct regulation.
User Fees
We support expanded use of user fees for government services where the individuals or businesses benefiting from a service can reasonably be identified.
Examples include highway tolls, national park fees, and charges for particular regulatory review processes.
Properly designed user fees connect the cost of a service with its beneficiaries and can improve the efficiency of public services. They should, however, be related reasonably to the cost or value of the service rather than used simply as another general tax.
Fairness and Distribution
A well-designed tax system must balance fairness, efficiency, and shared responsibility.
The approach described above would shift some of the tax burden away from income and toward activities that impose broader social costs. Where appropriately designed, this can improve economic efficiency while maintaining overall progressivity.
We also believe that most citizens should bear at least some share of the cost of government, directly or indirectly.
When individuals are largely insulated from the cost of government services, there is a natural tendency to favor more of those services. Conversely, when a relatively small group bears a disproportionate share of the cost, that group has an incentive to prefer less government.
A system in which the burden is broadly shared is more likely to produce a sustainable political consensus about the appropriate size and role of government.
Progressivity and Income Support
If greater progressivity is desired, CIVPAC believes that direct income support is generally more transparent and economically efficient than creating increasingly complicated tax preferences.
For that reason, we could support a Guaranteed Basic Income as part of a broader restructuring of the social-safety-net system. Such a program would make the distributional objective explicit rather than attempting to accomplish it indirectly through an increasingly complex tax code.
A Guaranteed Basic Income should, however, be considered primarily as a substitute for much of the existing system of means-tested income transfers rather than simply added on top of them.
Conclusion
CIVPAC supports a fiscal framework that maintains long-term sustainability, promotes economic growth, and aligns incentives with socially beneficial outcomes.
That requires both spending discipline and sufficient revenue. It also requires a tax system that is progressive without unnecessarily penalizing productive activity, broad-based without ignoring legitimate policy objectives, and simple enough that taxpayers can understand their obligations.
No tax system can eliminate every trade-off. The objective should be to finance the government Americans choose to have while minimizing unnecessary economic distortions and maintaining a sustainable relationship between spending, revenues, and debt.
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