Why A Wealth Tax Didn't Work In Europe

Elizabeth Warren has proposed a wealth tax. It's an idea that's been tried in Europe. We look at why it failed there and its prospects in the U.S.

RACHEL MARTIN, HOST:

Presidential candidate Elizabeth Warren is proposing a new kind of tax to fight inequality - a wealth tax. It hasn't been tried before in the United States, at least. Greg Rosalsky from our Planet Money team reports it has been tried in Europe, and it didn't go well.

GREG ROSALSKY, BYLINE: A wealth tax is like a property tax. But instead of just real estate, it covers all forms of wealth - cash, stocks, diamonds, horses, super yachts, basically, everything. Senator Warren's proposal would impose a 2 percent annual tax on every bit of a person's net worth over $50 million and also an extra 1 percent tax on billionaires.

GABRIEL ZUCMAN: The main justification for the wealth tax is that it's the most powerful tool to limit the rise in wealth inequality.

ROSALSKY: That's Gabriel Zucman, an economist at UC Berkeley who studies wealth inequality. He helped design Warren's wealth tax.

ZUCMAN: So Senator Warren was interested in proposing a wealth tax, and she knew about our work on wealth inequality in the U.S.

ROSALSKY: Zucman's research showed that the top 1 percent has been gobbling up a greater and greater share of national wealth, which is why he supports a wealth tax. But while the wealth tax would be a new policy for the U.S. government, it's actually been tried before.

SARAH PERRET: And they actually used to be quite popular in European countries.

ROSALSKY: That's Sarah Perret, a tax economist at the Organization of Economic Cooperation and Development. She says wealth taxes didn't work that well in Europe.

PERRET: And so the trend has really been to repeal them.

ROSALSKY: In 1990, there were 12 countries in Europe that had a wealth tax. Today there are only three. Perret says they didn't work for a lot of reasons. Among other things, it costs a lot to enforce. It pushed rich people out of the country, and the wealth taxes didn't raise a lot of revenue.

PERRET: That was mainly because many assets were exempt, and wealth taxes were easy to avoid.

ROSALSKY: So when Perret looks at the policy's track record...

PERRET: I would say, in general, it hasn't been great.

ROSALSKY: Warren argues her proposal learns from the failures in Europe. She told us in an email, quote, "I specifically designed this proposal to account for lessons learned from wealth taxes in other countries," unquote. Unlike in the European Union, it's hard for Americans to freely move to another country or state and escape national taxes. On top of that, the Warren plan imposes an exit tax, which would confiscate 40 percent of a person's wealth over $50 million if they renounce their citizenship. But the plan's key difference, Zucman says...

ZUCMAN: It's only for people who have more than $50 million in wealth - ultra-wealthy individuals.

ROSALSKY: In Europe, the tax affected a much bigger percentage of the population. Zucman believes that helped the rich lobby for all sorts of exemptions on business assets and pensions and artwork. It made for a leaky bucket.

ZUCMAN: That's what killed, basically, the European wealth taxes - these exemptions.

ROSALSKY: But Warren says that her proposal, which has no exemptions, will play out differently in the United States. Greg Rosalsky, NPR News.

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