The Trouble With Taxing Wealth

Elizabeth Warren’s proposed tax on net worth seems like a nearly surgical strike at inequality, but it may not be efficient

By Greg Ip. Excerpt:

"Denmark abolished its wealth tax, borne by the wealthiest 2% of families, between 1989 and 1997. In the subsequent eight years, the wealthiest families’ net worth rose 30%, according to a study by Katrine Jakobsen and three co-authors distributed last year by the National Bureau of Economic Research. The authors attribute most of this to increased saving.

Alan Auerbach, an economist at the University of California at Berkeley, thinks this shows a U.S. wealth tax would reduce wealth and saving by enough to hurt investment and economic growth. This might be offset if the U.S. turns to foreign savings to finance an investment. This, however, means foreigners would take a bigger share of U.S. income."