Proposals for taxing wealth, reforming estate taxation, and better measurement of billionaire fortunes are back on the policy agenda. Yet these debates rarely draw on historical experiences that show what wealth taxation looked like at scale, how well it measured the assets of the wealthy, or why wealth taxation ultimately retreated. This learning is overdue and matters as much for advanced economies as it does for developing countries, where property taxes remain the most underutilized fiscal tool and both revenue needs and inequality issues are pressing.
In a new paper, we build the first comprehensive, high-frequency annual wealth series spanning more than one hundred years using a largely overlooked source: the records of the General Property Tax in the United States. From 1800 until the Great Depression, this tax aspired to cover all private property, including land, buildings, livestock, financial assets, and, before emancipation, enslaved people. Compiled from thousands of state auditors’ reports and Census Bureau publications, our analysis offers a window into how wealth was measured, taxed, and documented at scale, with lessons applicable today.
When Income Data Fails, Wealth Data Steps In
For context, the General Property Tax generated substantial revenue, averaging 4 percent of GDP over 1850-1940, at a time when wealth accumulation was growing rapidly (fig. 1). Federal income taxation as we know it was only established in 1913, so governments were financing themselves almost entirely through taxing property at the time.
High-frequency property tax records reveal that private wealth grew from roughly three times GDP in 1800 to five times by the eve of World War I, punctuated by a collapse to an all-time low of 195 per cent of GDP at the end of the Civil War. The all-time peak came in 1932, in the depths of the Great Depression: at 580 per cent of GDP, it reflects output collapsing faster than asset values, a reminder that this ratio can rise for bad reasons as well as good. Today, private wealth is again above five times GDP after four decades of asset-price growth close to all time-highs.
Wealth at this scale and volatility is precisely what income-based tax systems are poorly equipped to measure. Today, policymakers concerned about the wealth of the ultra-rich face the same structural problem as back then: tax records only capture income flows and not economic capacity of the richest individuals. Capital gains can go unrealized, business income can be deferred, and much wealth today sits in assets that generate no reportable income from real estate to private equity. As a result, income-based systems understate the economic power of those at the top.
A direct tax on the stock of wealth, assessed periodically at or near market value, sidesteps many of these difficulties. The historical American experience shows that such a system can be administered at scale, even with nineteenth-century institutions and information technology. The challenge, as we describe below, lies in doing it well.
The Central Problem Is Accurately Measuring Wealth
The most important historical lesson from taxing wealth is the gap between assessed and market values. Local assessors, often elected and untrained, valued property well below market price, reducing revenue collected and creating incentives for non-compliance. As a result, the national average assessment (the share of market value captured in assessments) fell from about 83 per cent in 1850 to roughly 40 per cent by the early twentieth century, and far lower in some states.
Under-assessment remains one of the most persistent problems in property taxation today, with well-documented under-valuation of high-value real estate in the US, the UK, and even worse cases in developing countries. Under-valuation can be regressive: if costly properties are assessed at a lower share than cheaper ones, the effective rate on the wealthy is lower.
Recovering market values from administrative data demands investment in independent valuation. The nineteenth-century Census Bureau sent agents into the field, surveyed thousands of experts, and checked assessments against sale prices. Without that infrastructure, the base is whatever assessors say, usually too low for the assets of the wealthy.
READ MORE: https://blogs.worldbank.org/en/developmenttalk/history-s-lesson-for-taxing-wealth-today
