Paul L. Caron

Thursday, October 31, 2019

Zucman & Saez: Although Wealth Taxes Have Failed In Europe, They Can Work In The U.S.

Washington Post op-ed:  Wealth taxes often failed in Europe. They wouldn’t here., by Gabriel Zucman (UC-Berkeley) & Emmanuel Saez (UC-Berkeley):

In response to Sen. Elizabeth Warren’s wealth tax plan — and a similar proposal by Sen. Bernie Sanders — pundits have come out in force to argue that a progressive tax on the wealth of the ultrarich is destined to fail. Warren (D-Mass.) has proposed to tax wealth above $50 million at a 2 percent rate and wealth above $1 billion at 3 percent; the plan from Sanders (I-Vt.) would impose somewhat higher rates on the extremely moneyed, reaching 8 percent for wealth over $10 billion.


To bolster their case, the skeptics point to Europe’s experience with wealth taxation, casting it as a debacle that predicts failure on this side of the Atlantic, too. In 1990, 12 affluent nations in the Organization for Economic Cooperation and Development had wealth taxes; today it’s down to three. France, Germany and Sweden are among the countries that abandoned them.

For the skeptics, the case pretty much ends there. The tax was abolished? That means it was unworkable. Even “the most egalitarian European societies” have “moved away in droves from far less ambitious wealth taxes” than those Democrats are debating, the Harvard economist Lawrence Summers and Penn law professor Natasha Sarin wrote in The Washington Post. “Most … countries that implemented [a wealth tax] in the ’90s have taken it off the books,” observed Liz Peek, a Fox News contributor and former Wall Street analyst. (No matter that France, Germany and Sweden removed such taxes under conservative governments, which typically oppose taxes of this sort.)

But this interpretation of the European experience is superficial. Taxes are bound neither to fail nor to succeed: Governments can choose to make them work or allow them to fail, and European governments made wrong choices, letting tax avoidance fester. The taxes envisioned by Warren and Sanders — which we helped design — could be rendered largely immune to the problems that undermined wealth taxation abroad. In other words, the United States is in a good position to make this work. ...

We recently calculated that, considering all taxes at all levels of government, the richest 400 Americans pay 23 percent of their income in taxes, a lower rate than the working and middle classes pay. Tax dodging is not a law of nature, an unchangeable fate that dooms tax justice. In Europe, a choice was made to let wealth taxes fail rather than to shore up their weaknesses. It may not have been a conscious or democratic choice, the product of a rational deliberation by an informed citizenry, but it was a choice nonetheless. We needn’t make the same one, and the European experience suggests we shouldn’t.

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Can someone go ahead and give Piketty, Saez, et al a Nobel so we can get it over with?

Posted by: Dale Spradling | Nov 4, 2019 5:20:46 PM

It's failed everywhere, so let's try it again.

Posted by: Mike Livingston | Nov 3, 2019 4:33:17 AM