WHY WEALTH TAXES ALWAYS FAIL / PROJECT SYNDICATE

Why Wealth Taxes Always Fail

A clear-eyed view of past experience shows that where wealth taxes have been tried, they have usually been abandoned—and for good reason. As policymakers in California, New York, France, and elsewhere revisit this old idea, they should heed the lessons of this history.

Cristina Enache

MADRID—Around the world, wealth taxes have become a major topic of political debate. 

Proposals for a supranational wealth tax in the European Union, a billionaire tax in California, and the floating of similar measures in New York, France, and Denmark all reflect a growing conviction that extraordinary concentrations of wealth warrant extraordinary responses.

Yet taxing wealth is hardly a new idea. 

Such policies have been well tested, and their track record has been disappointing. 

Among other things, the revenue typically falls short of projections; behavioral responses inevitably erode the tax base; economic costs usually extend beyond the wealthy; and persistent legal challenges add another layer of uncertainty. 

Wealth inequality may very well be a problem worth addressing, but wealth taxes are not the solution.

Since the 1960s, at least 13 OECD countries have implemented net wealth taxes, and only a handful have kept them in place. 

Most were abandoned not because of ideological shifts, but because policymakers recognized the consequences. 

Governments reversed course after discovering that they had unwittingly encouraged capital flight, depressed investment and long-term economic growth, and created high administrative and compliance costs, all while raising relatively little revenue. 

Today, the few OECD countries that still impose broad net wealth taxes—including Spain, Norway, and Switzerland—collect only modest revenues from them, typically ranging from about 0.2% to just over 1% of GDP.

These outcomes underscore a central tension. 

Wealth taxes are often politically attractive because they target the ultra-wealthy. 

Yet, in practice, their tax base is highly mobile and responsive to any changes in policy. 

As the ultra-wealthy move to avoid the levy, the revenue that policymakers sought to capture slips away. 

Such taxes can either target a narrow base, which leaves them more susceptible to leakage, or they can raise more revenue by taxing far more people than their political messaging suggests.

France’s “Solidarity tax on wealth” (“Impôt de solidarité sur la fortune,” or ISF) is instructive here. 

Before it was replaced with a more targeted real-estate wealth tax in 2018, the ISF generated negligible revenue—less than 0.2% of GDP—despite having undergone decades of refinement. 

More recent attempts to revive similar levies have likewise fallen short of expectations, in some cases generating only a fraction of projected revenues. 

High-net-worth individuals, like others, respond to incentives, and wealth taxes encourage them to respond in one way: leave.

Moreover, plenty of other jurisdictions will always be ready to welcome them. 

When Spain introduced its Solidarity Tax on Large Fortunes, Portugal extended its own tax regime for nonresidents, anticipating that more Spanish taxpayers would be looking for a change of jurisdiction. 

Likewise, Norway’s relatively small (0.1 percentage point) increase in its wealth-tax rate led to a noticeable outflow of wealthy taxpayers, mainly to Switzerland.

In France, estimates suggest that tens of thousands of millionaires left the country between 2000 and 2017, when the ISF was in force, contributing to substantial capital outflows. 

To justify the policy’s repeal, the finance minister at the time, Bruno Le Maire, explained that “It’s essential we make these changes if we want to attract more foreign investment”—an implicit acknowledgment of net wealth taxes’ negative effects.

A recent Hoover Institution analysis of California’s proposed billionaire tax suggests that the state should expect a similar outcome. 

Once high earners relocate and their income-tax contributions vanish, the policy will result in a negative net fiscal impact—potentially costing the state around $25 billion. 

In many cases, just the discussion of a wealth tax will drive people and businesses away. 

As soon as it was announced that a wealth tax would be on the ballot in California, Google co-founders Sergey Brin and Larry Page started moving their holdings out of the Golden State.

More Harm Than Good

Wealth-tax proponents may respond that revenue and growth are beside the point; the real objective is to restore social cohesion and rebuild trust in the political system. 

But this argument misrepresents the purpose of tax policy and lacks empirical support. 

There is little evidence that wealth taxes foster political harmony. 

On the contrary, research by economists like Daniel Waldenström shows that prosperity is built from the bottom up through growth, not by trying to pull the top down.

The evidence also suggests that wealth taxes harm the very demographic groups they are trying to help. 

Though they are often framed as affecting only the richest households, their economic effects extend much further by reducing capital formation, discouraging entrepreneurship, curtailing wage and employment growth, and ultimately weakening the overall economy. 

Capital, after all, is a key input in productivity and income growth. 

When it is taxed heavily, particularly at rates that may exceed actual returns, investment declines. 

(In some modeled scenarios, combined taxes on capital income and wealth can produce marginal effective tax rates exceeding 100% of real returns.)

A wealth tax is not simply another way to tax income, but rather an extra tax on assets that may produce little or no cash. 

This distinction matters because, for entrepreneurs and others whose wealth is tied up in illiquid assets, the tax bill can arrive long before the cash does. 

Such taxpayers are then forced to sell part of a business, property, or investment portfolio merely to satisfy the government’s claim. 

Under such conditions, there is little incentive for new startups to scale up their activities.

Even seemingly low wealth taxes aimed at a small group can distort economic decisions, as in the case of California’s proposed one-time 5% tax on billionaires’ net worth. 

This levy may sound simple, but owing to its aggressive design and numerous drafting flaws, the headline rate should be viewed with skepticism.

Consider how the proposal would value corporate founders’ stakes. 

Many tech CEOs hold “super-voting” shares that give them control far beyond their ownership percentage. 

DoorDash co-founder and CEO Tony Xu, for example, owns 2.6% of the company but controls 57.6% of its voting shares. 

Under a certain reading of the billionaire-tax proposal, that voting control would produce a $2.62 billion tax liability on an ownership stake worth $2.41 billion. 

If he had to sell shares to pay the tax, capital-gains taxes could raise the total liability to $4.17 billion—173% of the value of his DoorDash shares. 

While the drafters disavow this interpretation, it will be up to California voters to decide if the gamble is worth taking.

If they do, legal challenges will follow. 

Courts have already struck down wealth taxes in several countries where they have been tried. 

Germany’s Federal Constitutional Court invalidated its wealth tax in 1995, and Dutch courts have ruled that aspects of wealth taxation are inconsistent with property-rights protections. 

In Spain, a long-awaited ruling on the wealth tax remains pending. 

Although a decision was expected in 2024, the Constitutional Court has yet to rule on whether the current framework, particularly in conjunction with the Solidarity Tax on Large Fortunes, respects core constitutional limits—namely, taxpayers’ ability to pay and the prohibition of confiscatory taxation.

Some European policymakers already acknowledge how controversial and politically challenging wealth taxes can be. 

In October 2025, France’s parliament rejected economist Gabriel Zucman’s proposal for a 2% annual tax on fortunes above €100 million ($114 million), which would have targeted around 1,800 households in the hope of raising up to €20 billion. 

Conservative and centrist lawmakers rightly raised concerns that such a policy would trigger capital flight. 

More recently, Danish Prime Minister Mette Frederiksen scrapped her wealth-tax proposal this May to overcome a key obstacle in negotiations to form a new government.

All saw the writing on the wall. 

As former UK Chancellor of the Exchequer Denis Healey acknowledged in his memoirs: “We had committed ourselves to a wealth tax; but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.”

Try, Try Again?

In the case of the United States, wealth-tax proposals face yet another constraint: interstate mobility. 

Unlike national governments, states operate within an integrated economic union where individuals can relocate relatively easily. 

Subnational wealth taxes thus are especially vulnerable to base erosion. 

Even small outflows of high-income residents can significantly affect both wealth-tax revenues and other tax streams, such as income taxes.

In California, with interstate mobility and several high-profile individuals changing their residency status ahead of the potential implementation of the tax, the proposal has already weakened the state’s tax system. 

Since California relies heavily on a narrow group of top earners for its personal-income-tax base, a wave of departures could erode much of the revenue a billionaire tax is meant to generate. 

And that is before factoring in the inevitable legal challenges.

California should have learned this lesson from the state of Washington’s failed 2023 proposal for a 1% tax on tradable net worths above $250 million. 

While the state’s economists projected that the measure would raise about $3.2 billion per year, 45% of that—$1.44 billion—would have been collected solely from Amazon founder Jeff Bezos. 

When Bezos relocated Florida, almost half the anticipated revenue vanished overnight.

These dynamics mirror the European experience. 

For obvious, predictable reasons, high rates applied to a small mobile base have tended to trigger relocation, legal challenges, and an overall negative impact on tax revenue. 

Thus, where wealth taxes have been tried, they have usually been abandoned. 

As policymakers in California, New York, France, and elsewhere revisit this old idea, they should heed the lessons of this history.

Policymakers should stop wasting public resources reviving failed ideas, especially ones that are more about political signaling than devising meaningful solutions. 

They should discard proposals that offer the appearance of concern for the middle class while delivering few real benefits. 

To restore public confidence in our political and economic system, we should instead focus on fostering growth and expanding opportunity—on building the bottom up, not tearing the top down.

Cristina Enache is an economist at Tax Foundation Europe.