Bernie Sanders often points to Europe as his economic model, but there’s one lesson from the Continent that he and Elizabeth Warren want to ignore. Europe has tried and mostly rejected the wealth taxes that the two presidential candidates are now promising for America.
Sen. Warren’s plan sets an annual 2% tax on assets above $50 million, and the rate rises to 6% for billionaires. Sen. Sanders wants to tax joint filers’ wealth between $32 million and $10 billion at rates of 1% to 8%. His advisers brag that this could wipe out half a billionaire’s wealth in 15 years.
The candidates say these taxes will deliver “justice” and revenue to finance their vast new spending plans. That’s also what Europe’s socialists said only to find it didn’t work:
• 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 In 2007 the government repealed its 1.5% tax on personal wealth over $200,000.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. Warren argues her law isn’t a direct tax, but courts would get their say.
• 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 Hollande, scrapped the scheme in favor of a property tax.
• Austria. One difficulty of imposing a wealth tax is figuring out how much someone is worth. Valuing securities, homes or private jets is at least relatively objective. What about modern art, race horses or closely held companies? When Austria abolished its decades-old wealth tax in 1994, officials cited the administrative burden of calculating the exact levy.
While a dozen European states had wealth taxes in 1990, the number has fallen to three today. Nationally Spain taxes fortunes above €700,000 at 0.2%, rising to 2.5% at roughly €10.7 million.
Rates can vary among Spain’s regions, but does anyone think of Madrid as an economic model? Switzerland’s wealth tax hits the middle class, starting in the low six figures inside most of the country’s 26 cantons. Norway taxes wealth starting at about $170,000 at 0.85%, but the country’s oil reserves have let it get away with bad economic decisions for decades.
Despite the obvious flaws, the wealth tax stays alive in the socialist mind because it is the ultimate populist envy tax. Donald Trump popped off in support of a wealth tax when weighing a 2000 presidential bid, no doubt without much thought.
The best argument against a wealth tax is moral. It is a confiscatory tax on the assets from work, thrift and investment that already have been taxed at least once as individual or corporate income, and perhaps again as a capital gain or death tax. The European experience shows that it also fails in practice. The question is how much economic damage comes first.
— The Wall Street Journal