A libertarian think tank is raising fresh concerns about the renewed push for wealth taxes on the ultra‑rich, arguing that countries that tried them mostly backed away — and for reasons policymakers should remember.
In a new “Failure of Wealth Taxation” report, the Cato Institute’s Adam Michel and Chris Edwards say the embrace of wealth taxes gaining traction in the U.S. and abroad is misguided.
California voters will weigh a one‑time 5% tax on residents with more than $1 billion in worldwide net worth this November.
At the federal level, Massachusetts Sen. Elizabeth Warren has reintroduced her Ultra‑Millionaire Tax Act, and Vermont Sen. Bernard Sanders is once again pushing his Make Billionaires Pay Their Fair Share Act.
“Governments have found that wealth taxes and high taxes on capital income encourage tax avoidance and capital flight, raise little revenue, and tend to become riddled with loopholes,” the Cato report says. “Wealth is savings, which the economy harnesses for investment to support higher wages and more jobs. Raising taxes on wealth would impose costs that ultimately fall on average Americans through reduced productivity and innovation.”
Mr. Michel and Mr. Edwards argue that instead of doubling down on wealth taxes, elected leaders should shift toward consumption taxes that the authors say raise revenue more efficiently.
They frame the current moment as a break from a long‑running consensus.
In 1990, a dozen Organization for Economic Cooperation and Development countries imposed annual wealth taxes. Today, only four — Norway, Spain, Switzerland and Colombia — do, even though the Cato report says 14 countries have tried them at some point.
Citing a 2018 OECD study, the report says these taxes typically raise 0.2% of gross domestic product and were often scrapped because of capital flight and high administrative costs.
France is one of the clearest examples, the report argues. Over 15 years, wealthy entrepreneurs and celebrities left the country in large enough numbers that 10,000 people holding almost $40 million in assets moved away, according to a French government report cited in the Cato study.
France ultimately scaled its wealth tax back to real estate only in 2018, and the outflow reversed.
Sweden saw a similar pattern — including the departure of IKEA founder Ingvar Kamprad, who left in 1973 amid Sweden’s high taxes of that era — before the country repealed its wealth tax in 2007.
Even among the countries that still levy wealth taxes, Cato says the problems persist. Norway raised its rate in 2022 and saw a wave of wealthy residents relocate to Switzerland, taking substantial assets with them.
Spain’s government has collected only about 40% of the revenue it expected from a 2022 tax on large fortunes, according to the Cato report, which cites the Tax Foundation Europe.
The report also questions the thinking behind California’s proposed billionaire tax. Supporters say it will raise $100 billion, but Cato points to a Hoover Institution study showing that nearly 30% of the expected tax wealth base — including Larry Page, Sergey Brin and Peter Thiel — already left the state before the measure even qualified for the ballot. Adjusting for that, Hoover researchers estimate the revenue would be closer to $40 billion.
Even that, the report argues, doesn’t tell the full story. California’s billionaires already pay $3.3 billion to $5.8 billion a year in state income taxes — money the state would lose permanently if they moved. Factoring that in, the Hoover study estimated California could ultimately lose $25 billion in net revenue over time.
Instead of taxing wealth directly, Cato argues Congress should shift the federal tax system toward a consumption base.
A consumption‑based system, the report contends, could be just as progressive while collecting revenue more efficiently, since wealthier households draw more of their capital income from above‑normal returns that a value-added tax — which draws on money spent on goods and services rather than income and savings — would still fully capture.
It also says such a system would close loopholes like the “buy‑borrow‑die” strategy and the preferential treatment of carried interest.
