Where Wealth Taxes Failed

Here’s a lesson from Europe that Warren and Sanders ignore

WSJ editorial.

"Europe has tried and mostly rejected the wealth taxes that the two presidential candidates are now promising for America."

"• Sweden. The Nordic country had a wealth tax for most of the 20th century, though its revenue never accounted for more than 0.4% of gross domestic product in the postwar era. One reason is that the levy treated different assets differently. This distorted investment as the wealthy took on debt to buy tax-free assets. If the U.S. farm lobby convinced President Warren to remove farmland as a taxable asset, say, prepare for a property bubble.

The relatively small Swedish tax still was enough of a burden to drive out some of the country’s brightest citizens. IKEA founder Ingvar Kamprad famously left Sweden for Switzerland in the 1970s over onerous taxation. In 2007 the government repealed its 1.5% tax on personal wealth over $200,000.

• Germany. Berlin imposed levies of 0.5% and 0.7% on personal and corporate wealth in 1978. The rate rose to 1% in 1995, but the Federal Constitutional Court struck down the wealth tax that year, and it was effectively abolished by 1997. America’s Founders banned “direct taxes” not apportioned by state population. Ms. Warren argues her law isn’t a direct tax, but courts would get their say.

The German left occasionally proposes resurrecting the old system, and in 2018 the Ifo Institute for Economic Research analyzed how that would affect the German economy. The authors’ baseline scenario suggests that long-run GDP would be 5% lower with a wealth tax, while employment would shrink 2%. Business investment could see more dramatic declines. The report concluded that the wealth tax’s “burden is carried by virtually everyone, as indicated by the decline in GDP, investment, and employment.”

• France. In 1982 Socialist President François Mitterrand imposed a wealth tax with a top rate of 1.5% on assets above $1.5 million at the time. The tax was eliminated then reimposed several years later. In 2013 another Socialist President, François Hollande, tried to hit the wealthy even harder.
The results? Some 70,000 millionaires have left France since 2000, according to the South African research group New World Wealth. In 2017 French President Emmanuel Macron, a former economic adviser to Mr. Hollande, scrapped the scheme in favor of a property tax.

Ms. Warren expects her wealth tax to raise some $3.6 trillion in the first decade, while Mr. Sanders promises $4.35 trillion. France’s experience suggests this is fanciful. In 2016 French economist Eric Pichet noted that the wealth tax caused a net revenue loss. Paris collected €5.4 billion from the wealth tax in 2015. Yet total tax receipts were at least €7.5 billion lower than they otherwise would have been, since investment declined and hundreds of billions of euros moved offshore."

"While a dozen European states had wealth taxes in 1990, the number has fallen to three today."