How Zakat Inspired a Proposed Wealth Tax in the United States

Modern problems require modern solutions. Or age-old, reliable, tested solutions.

One issue that has cropped up has been how to effectively use taxes to address the growing wealth disparity in many countries. Should something like a wealth tax be used to address this? The question has been increasingly weighty as the world’s ultra-rich use their massive wealth to build rockets versus addressing critical issues such as world hunger. 

Islam has a way of addressing new issues that come up in our time, just as it addressed issues clearly at the time of its revelation to the Prophet Muhammad, peace be upon him.

John D. Rockefeller became the world’s first confirmed U.S. dollar billionaire in 1916, and Forbes has identified 2,755 billionaires in 2021. Still a small number compared with the global population, but these ultra-wealthy individuals have profound effects on the world economy through their business assets and their taxes. 

“IRS records show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year,” according to a June 8 ProPublica report. The uber-rich have long played by rules that allow them to always come out on top. 

It’s critical in a society with a fast-growing population with finite resources to find a sustainable approach to combat the also growing wage-gap. In the United States, American Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont have proposed 2% and 3% wealth taxes. This proposal, called the Ultra-Millionaire Wealth Tax, “would level the playing field and narrow the racial wealth gap by asking the wealthiest 100,000 households in America, or the top 0.05%, to pay their fair share.”

It includes a 2% annual tax on the net worth of households and trusts between $50 million and $1 billion, and a 1% annual surtax (3% tax overall) on the net worth of households and trusts above $1 billion. The tax would only target those with a household income exceeding $50 million — far from affecting the average citizen. To add perspective to that household net worth, the United States’ median household income in 2020 was $78,500, according to the U.S. Department of Housing and Urban Development. 

This proposed tax rate, although controversial among the country’s most wealthy at a secular level, bears quite the similarity to a religious concept Muslims know well. Although Zakat sums fluctuate based on the type of wealth and gold’s value at the time of paying, Zakat is generally calculated at 2.5% of one’s wealth once a person has saved enough in a lunar year to cross a threshold called nisab. 

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Using the US dollar as the example in calculation, that threshold is defined as the current per-gram price of gold multiplied by 85 grams. If gold at this moment costs $50 per gram, then nisab would be $4,250. That would mean a person would’ve had to save at least that much for an entire lunar year (called a hawl) to be eligible to pay Zakat.

All this to say it seems Islam set a precedent long ago for taxing those with enough wealth to be able to afford it at a rate that makes a big, positive difference for those who can’t. Using that money for taxes, but without putting a huge hole in the wealthiest people’s pockets, makes the rate effective, sustainable, and fair. 

Long have the wealthiest 0.05% been able to hoard their money, not helping those in need if they choose not to. This concept is directly opposed in Islam, which holds Zakat as its third pillar.

In Islam, those with excess wealth must give to the poor and needy so they may purify their wealth. That purification comes in the form of feeding and housing orphans, uplifting the refugee, freeing the captive, forgiving debt, and more.

Translating to United States taxes, this can mean more resources for health care, schools, roads, and other infrastructure, like replacing outdated water lines. It all starts by drawing funds from the most abundant sources. This taxation, in addition to increased charitable spending to both national and international nonprofits as seen throughout the pandemic, paves a path for global infrastructure improvements.

Zakat, though, has a much lower threshold than the $50 million qualifications proposed in Warren’s tax plan. It allows more people to give specifically to those who need it, whether directly to people they know or come across on their own, or through trusted, financially transparent nonprofit organizations like Zakat Foundation of America.

Equity starts with uplifting the poor, the needy, those whose hearts are to be reconciled, those in captivity, the debt-ridden, the wayfarer, and more. It starts with the purification of one’s heart and one’s wealth.