Interactive · Personal Finance

Wealth Tax.

You'd need 10.6% returns just to stand still.

To preserve real net worth under a 5% wealth tax — after capital-gains tax on the assets sold to pay it, and after inflation.

Adjust the assumptions below to see how a recurring tax on net worth, paired with the income and capital-gains taxes already due, forces real returns to clear a much higher bar than markets historically deliver. Every number updates as you change the inputs.

Step 1 · Pick a Starting Net Worth

or Each preset adjusts wealth and living expenses to reasonable defaults — fine-tune below.

Step 2 · Set Assumptions

Starting wealth

Net worth subject to the wealth tax. Slider is logarithmic — type for an exact figure.

Wealth tax rate

Applied each year to beginning-of-year wealth.

Annual growth of wealth

Pre-tax appreciation on invested assets.

Dividend & interest yield

Cash income from dividends and interest.

Salary income

Outside earnings from work, taxed at your location's federal + state rate.

Living expenses

Annual spending including housing.

Location

Drives the federal + state brackets applied to salary and dividends.

Effective tax: — (—)

Long-term capital-gains rate

Combined Fed + State on assets sold to fund the wealth-tax bill.

Inflation rate

Erodes the real value of nominal wealth each year.

Step 3 · Read the Result

Return needed to stand still

—

to preserve real net worth over ten years

vs Nominal breakeven — if you only need to keep the dollar number flat

Wealth eroded by the tax

—

over ten years vs no wealth tax

Year 10 wealth

$0

from starting wealth

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Trajectory

Wealth across ten years

With wealth tax Without wealth tax

Shaded area: — in wealth eroded by the tax over the decade.

Ledger

Year-by-year detail

All figures rounded for display. Negative values denote outflows; the End Wealth column carries forward to the next year's Begin.

Methodology

How the model handles the cascade.

Each year the simulator applies growth, dividends, and salary to beginning-of-year wealth, deducts living expenses, then applies four taxes: a flat-rate wealth tax on net worth, ordinary income tax on dividends and salary (using your location's federal + state brackets), and long-term capital gains on assets liquidated to fund the wealth-tax bill itself.

The cap-gains line is the subtle one. To raise W·t in cash, the household must sell enough assets to cover both the wealth tax and the gains tax owed on the sale. That sale triggers more gains, which require another sale — a geometric cascade. Assuming a near-zero cost basis (typical for founder equity or long-held positions, and conservative against the household), the cascade resolves in closed form:

Capital-gains tax = W · t · ( c / (1 − c) ) where W = beginning wealth t = wealth-tax rate c = long-term capital-gains rate

At the default settings (t = 5%, c = 40%), the cascade adds 3.33% of wealth per year on top of the headline 5% wealth tax — meaningfully more than a single-pass Schedule D estimate would suggest.

Breakeven growth, derivation

Setting net annual change to zero and solving for g:

ΔW = W·g + W·d(1−i) + S(1−i) − L − W·t/(1−c) = 0 g = t/(1 − c) − d(1 − i) + ( L − S(1 − i) ) / W

Here i is the effective ordinary-income tax rate from your location's federal + state brackets applied to the combined salary + dividend income, and c is the LTCG rate (federal + state) for the selected location. The progressive brackets mean i moves as the income mix shifts; the simulator recomputes it on every render.

For a $5M net worth in California at default rates, this works out to roughly 7.6% nominal. The simulator solves the same equation numerically over the full ten-year horizon (since wealth itself moves), which is what the "Nominal breakeven" stat reports.

Why inflation is a double-whammy

Inflation erodes the real value of money at rate π per year. To preserve real wealth, nominal wealth must grow at π just to stand still. But the wealth tax base is nominal — every dollar of inflationary appreciation enlarges next year's wealth-tax bill.

The cap-gains tax compounds the problem: when assets are sold to fund the wealth tax, the IRS doesn't index basis for inflation. A position that merely kept pace with inflation is still treated as a gain. With near-zero basis assumed here, every dollar liquidated is taxed at the long-term cap-gains rate, regardless of whether the underlying return was real or inflationary.

Net result: real-breakeven growth ≈ nominal-breakeven growth + inflation. At 3% inflation, the headline breakeven jumps from 7.6% to 10.6% — meaningfully above the S&P's long-run average of ~8% real, ~10% nominal.

What this model does not attempt

Tiered or graduated wealth-tax brackets, dynamic capital-gains realization timing, charitable offsets, basis step-up at death, state-residency arbitrage, and behavioral responses (relocation, asset re-characterization, leverage) are all out of scope. The point is to isolate the arithmetic of a single-rate wealth tax sitting on top of the existing income- and gains-tax system.

This is a thought tool, not tax advice. Anyone making real decisions should consult an actual professional.