However, it’s not an entirely novel idea. Taxing the accumulated assets of the wealthy is actually a fairly mainstream concept in Europe — or at least it used to be.
In 1990, a dozen European countries had various forms of taxes on wealth, as opposed to income. But now, that number is down to three. As NPR reported earlier this year, the taxes created incentives for people to hide their wealth, proved difficult to administer and enforce, and didn’t always raise as much revenue as expected. France was the most recent country to get rid of their wealth tax in 2017.
The trend was not lost on New Jersey Sen. Cory Booker, who challenged Warren about the decline of the wealth tax elsewhere during last week’s Democratic presidential primary debate
“I’m sorry, it’s cumbersome,” Booker said. “It’s been tried by other nations. It’s hard to evaluate. We can get the same amount of revenue through just taxation.”
Warren didn’t directly address the critique during the debate, but she was pressed again about why other countries had moved away from a wealth tax during a meeting Tuesday with the Des Moines Register‘s editorial board. The Massachusetts senator said she was aware of the wealth tax’s failings in other countries — and had learned from them.
“The principal problems in Europe were twofold,” she said. “One is that they went way too deep in the wealth range. So it wasn’t about a thin layer at the top; it was about a huge portion of the population — trying to collect a wealth tax from everyone.”
Many of the European wealth taxes affected families in the middle class, which could be hard for those whose net worth was tied up in property or financial assets.
Warren’s originally proposed 2 percent wealth tax, however, would only kick in on fortunes over $50 million, increasing to 3 percent above $1 billion (though she has suggested increasing the top rate to 6 percent to help pay for her health care plan).
“Look, you can get into an argument over whether or not a 4-year-old Prius is worth $15,000 or $18,000, but it’s not exactly where you’re going to bring in a lot of revenue or where you’re going to make a lot of difference — and, in my view, not where we should be putting our taxes,” she told the Des Moines Register.
“That’s not where I want to tax,” Warren added. “We have a middle class that’s already under way too much financial constraint.”
The plan also includes an option to defer payment of the tax for up to five years — with interest — to address concerns about the “rare” case in which someone with extremely high net worth has liquidity constraints.
The second issue with the way Europe’s wealth taxes were constructed was that governments created “way too many exceptions to the rule,” Warren said; the taxes depended on different types of property and where it was held. According to NPR, some countries had exemptions for things like art or business assets, which created perverse incentives and loopholes.
“Guess what: billionaires are slippery,” Warren said. “They know how to move out of the country. They know how to move their assets out of the country. They know how to switch from holding assets in cash to holding assets in gold bars or in paintings.”
Her solution: No exemptions. According to her plan, all assets — including real estate, closely held businesses, financial and retirement assets, and personal property with a value of $50,000 — would be included.
“I spent a lot of time with a lot of tax experts, including the lawyers who helped these guys protect their fortunes from tax, and they said the easier way to do this is keep it simple,” Warren said.
The simplicity would result in more revenue and fewer opportunities for avoidance and evasion, according to her campaign. Warren estimates the tax would raise $2.75 trillion over 10 years, funding proposals from her universal childcare program to her plan to forgive student debt. While those estimates factor in an assumed 15 percent avoidance rate (which Warren said Tuesday she hopes is “way too high”), the plan also includes a one-time 40 percent “exit tax” on the net worth above $50 million of any American who renounces their citizenship to avoid the tax, as well as a “significant increase” to the IRS budget.
“It turns out a huge chunk of the wealth is really easy to find, because it’s in real estate and it’s in stock portfolios,” Warren added, noting that such vast fortunes often have money managers. “They’re already keeping records on this.”
Warren was asked about the possibility that, even if the wealth tax was implemented, wealthy individuals could end up lobbying Congress for the sort of exemptions that largely doomed wealth taxes in Europe. The question was the reason that Warren said her anti-corruption plan was her “first priority.” It also touched on what she said was a foundational reason for her campaign.
“I’m sick of a Washington that works for the billionaires and doesn’t very well for anyone else,” Warren said.