Elizabeth Warren's plan to tax the super-rich has been tried before. Here's what happened.


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Sen. Elizabeth Warren, D-Mass., has made a splash with her plan for a "wealth tax" on the super-rich, a major break from typical Democratic proposals that target income, investment gains and inheritances.

While wealth taxes aren't a new invention and a handful of developed nations currently have them in place, they are on the decline: The number nations that are members of the Organization for Economic Cooperation and Development with a wealth tax dropped from 12 to four from 1990 to 2017, according to a report by the organization last year.

With inequality hitting new heights, though, Democrats running for president have made finding new ways to tax the rich and distribute the benefits downward a key part of their economic message. Wealth taxes are making a comeback in policy discussions abroad as well, led by French economist Thomas Piketty's call for a global tax on the rich.

Now economists are debating what other countries can tell us about the Warren Ultra-Millionaires Tax and whether it's useful to tie their experiences to the United States.

One prominent case study is Switzerland, where a longstanding series of wealth taxes account for about 1 percent of GDP each year. That's a much higher share than in other countries with a wealth tax and it's similar to what Warren's advisers predict her own tax would raise.

"The comparison everyone is thinking of is Switzerland, because it's probably the best precedent for a reasonably effective wealth tax," Ari Glogower, a professor at Ohio State University who researches wealth taxes, told NBC News.

The country's wealth tax may offer some insight into one looming question over Warren's wealth tax, which is whether its targets would find ways to avoid paying it. It's an important debate, because Warren's counting on her tax to raise a lot of money for social programs: $2.75 trillion over 10 years, according to an estimate by Emmanuel Saez and Gabriel Zucman, two economists advising her campaign.

Under Warren's proposal, households with over $50 million in assets would pay a 2 percent tax on their net worth every year. The rate would rise to 3 percent on assets over $1 billion. Warren's plan would affect just 75,000 households total.

Taxes on wealth in Switzerland are not fixed, but set by 26 regional governments with rates that varied from 0.13 percent to 1 percent per year in 2016, according to the OECD report. They also are much broader, affecting not just millionaires, but many middle-class households as well.

A study of the country's tax system by Jonathan Gruber and several other economists found that for every 0.1 percent taxes on wealth went up in an area, the wealth taxpayers reported to the government dropped by 3.5 percent.

"When you tax people's wealth, they manage to somehow reduce their taxable wealth," Gruber told NBC News. "We don’t know if it's by saving less or by hiding it."

Critics point to these shifts as evidence that a wealth tax is an inefficient way to collect taxes. While the IRS can easily check the price of a publicly traded stock, it may be hard to value a privately held company or a rare art collection until it's sold, which is often a source of legal battles in calculating estate taxes. But unlike an estate, which is taxed once at death, the government would have to figure out the value every year.

"It's really difficult to enforce," said Alan Cole, a former adviser to House Republicans on tax policy. "That's why almost everyone goes the capital gains tax route and very few go the wealth tax route."

The OECD's report found that countries with wealth taxes have tended to collect relatively similar amounts of revenue over time even as the overall wealth in their countries increased at much faster rates. This suggests taxpayers either found new ways to get around them or that legislators and tax collectors weren't keeping pace with annual growth.

Anticipating this concern, Warren's plan includes a pledge to bolster the IRS, require a minimum number of audits, and use a variety of techniques to indirectly value more difficult to price assets.

While they expect the rich to succeed in shielding some of their assets, Warren advisers Saez and Zucman peg the number at 15 percent total based on a survey of existing research. In a letter to Warren, they wrote that Gruber’s study was an "outlier" and that studies of wealth taxes in other countries like Sweden and Denmark showed less tax avoidance.

As Gruber noted, Switzerland's broad tax base makes it a less than exact comparison. But the tax rate in Warren's plan would also be much higher, giving its targets more motive to avoid it. They would also be more likely to have skilled accountants and lawyers to help them out.

"It doesn't mean it's a bad idea or it won’t raise money," Gruber said. "Elizabeth Warren's tax would raise money, it's a question of how much."

At the same time, some argue recent changes in finance make it harder for the rich to hide assets from tax collectors.

Lily Batchelder, a professor at New York University and former economic adviser under President Barack Obama, pointed to The Foreign Account Tax Compliance Act, a 2010 U.S. law in coordination with other governments around the world that requires banks to report activity by American citizens.

"It's certainly not perfect and there's more work to be done, but compared to even five years ago, the landscape has really changed," she said. "So people who are looking at this from five or 10 or 20 years ago are missing that."

Gruber's study does cut against another top concern raised by critics of a wealth tax — that it will cause taxpayers to pack up and move. Even with lower-tax options inside the same country, their research found little sign of people moving to avoid higher rates.

The fear that the ultra-rich will not just lowball their fortunes, but pack up and take them to a rival country, is a significant reason the wealth tax has declined. In France, President Emmanuel Macron replaced the country's decades-old wealth tax with a narrower tax on real estate partly in response to data suggesting 60,000 millionaires had left the country since 2000.

In one prominent case, famed actor Gérard Depardieu moved across the border to less-taxed Belgium while criticizing France's policies. It wasn’t just the wealth tax — the previous government also imposed a 75 percent tax rate on income for millionaires, a policy that bears similarities to a proposal by Rep. Alexandria Ocasio-Cortez, D- N.Y.

Warren's plan would apply to Americans based on citizenship, not where they live or where their money is earned, so the ultra-rich couldn’t easily move to avoid it. If they renounced their citizenship, they’d have to pay a one-time 40 percent "exit tax" on their net worth.