Senator Elizabeth Warren proposes a new kind of U.S. tax policy: a wealth tax. But the policy faces serious hurdles, including lessons from a failed experiment in Europe and a constitutional challenge.
, there were some clear themes with the policy: it was expensive to administer, it was hard on people with lots of assets but little cash, it distorted saving and investment decisions, it pushed the rich and their money out of the taxing countries—and, perhaps worst of all, it didn't raise much revenue.helped put wealth inequality back on the American policy agenda, played a part in designing Warren's wealth tax. He says it was designed explicitly with European failures in mind.
He argues the Warren plan is"very different than any wealth tax that has existed anywhere in the world." Unlike in the European Union, it's impossible to freely move to another country or state to escape national taxes. Existing U.S. law also taxes citizens wherever they are, so even if they do sail to a tax haven in the Caribbean, they're still on the hook.
Warren's tax is also only limited to the super rich, whereas in Europe the threshold was low enough to also hit the sort-of rich. This higher threshold helps it avoid problems like someone having a family business that makes them look rich on paper but, in fact, they're short on the cash needed to pay the tax.
Also important, Zucman argues, the higher threshold means only a small group will be affected. And smaller groups have a harder time fighting for exemptions, which hurt European efforts. Some countries, for example, on the grounds they were hard to value. It's true, but it creates a huge loophole: Buy lots of art! Economists hate incentives like these because they distort markets. Warren's proposal calls for no exemptions.But having no exemptions means the U.S. government will have to get very good at valuing art, diamonds, superyachts, and all the other fabulous things the super rich collect. Indeed,
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