As her first act after joining the Senate Finance Committee, Senator Elizabeth Warren (D-Mass.) plans to introduce legislation calling for a $2.75 trillion wealth tax.

A wealth tax is an annual tax on a taxpayer’s assets. This tax leads to double taxation as it is imposed in addition to income taxes and is imposed on the same assets year after year. As reported by Fox Business, Warren’s proposal would impose a tax on taxpayers who have assets above $50 million with a top rate of 6 percent per year. 

This tax would be unconstitutional, would harm the economy, would give the IRS immense power, would be difficult or impossible to calculate and enforce, and will almost certainly grow in size to hit millions of taxpayers. 

A “wealth tax” is unconstitutional. Article 1, Section 9, Clause 4 states: “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”  

It is abundantly clear that a wealth tax is a direct tax. Federalist No. 36 explained that taxes on “houses and lands” were direct taxes. Supreme Court majorities have said on at least seven occasions that federal taxes on real property are “direct taxes.” With this condition in mind, it is also clear that Warren’s plan would not be apportioned based on state population, making it inconsistent with Article 1, Section 9.   

As explained by Daniel Hemel and Rebecca Kysar in the New York Times, “We are tax law professors who identify as liberal Democrats, donate to Democratic candidates, publicly opposed the Trump tax cuts and strongly support higher taxes on the affluent… We are worried, though, that leading figures in our party are coalescing around an idea whose constitutionality is doubtful at best.”  

A wealth tax would harm the economy. According to an American Action Forum (AAF) study, a wealth tax would decrease innovation and investment, driving down wages and causing unemployment. The same study explained that it would shrink GDP by $1.1 trillion over the first ten years, and then continue to shrink it each year by $283 billion, or 1 percent of GDP. Currently, the United States’ GDP is $21.43 trillion. The CBO predicts that by 2030, the GDP will be $32 trillion. If a wealth tax was implemented, this single tax would, quite literally, cut into over 10 percent of those gains in GDP.  

This tax would result in a loss of $785 billion in labor income. Over the long run, wage losses would amount to $241 billion annually. As described in AAF’s study, “In short, over the long run Warren’s wealth tax is more damaging to workers than anyone else.”  

A wealth tax would give the IRS immense, invasive power. Warren’s “wealth tax” would empower IRS agents to keep a list of all household assets, an extremely invasive power. With the IRS’s history of discrimination and malpractice, this knowledge is especially concerning. The IRS would also have the power to pick a date to value assets, as they may change or be gifted to others throughout the year.  

The Warren “wealth tax” also includes a 40% “exit tax.” Even the Washington Post editorial board said this arrangement “conveys a certain authoritarian odor,” as it binds people to the United States with severe financial consequences for deciding to leave.  

A wealth tax would be difficult to implement and enforce. One report from the left-of-center Institute on Taxation and Economic Policy suggests that the IRS would need to spend $5 billion to properly enforce and administer a wealth tax. If this money was spent exclusively on IRS employees, it would be the equivalent of 80,800 new full-time agents, twice the current IRS’s workforce.  

Even if new workers are hired and more money is spent to enforce a wealth tax, it is still unlikely that the IRS would be able to pull it off. This is because there are extremely expensive compliance costs, distorted savings and investment, and difficulty valuing non-liquid assets as reasons for repeal.   

Several countries have repealed their wealth taxes for these exact reasons. In 1995, 15 countries had a wealth tax, 11 of which failed and were repealed. The countries that have repealed their wealth taxes are Sweden, Denmark, the Netherlands, Austria, Finland, France, Germany, Iceland, Luxembourg, Ireland, and Italy. In addition to cost of enforcement, which Austria cited specifically, and the difficulty of valuing assets, these countries also found that the tax was ineffective at combating wealth insecurity and did not redistribute wealth in favor of low-to-middle income earners.     

The wealth tax would be a tool to expand the size and scope of the federal government. To draw a parallel, Congress enacted the Alternative Minimum Tax (AMT) in 1969 following the discovery that 155 people with adjusted gross income above $200,000 had paid zero federal income tax. The AMT grew so large that it was projected to tax nearly 30 million Americans (20 percent of filers) in 2010, forcing Congress to pass reforms reducing the size of the tax. Even with these fixes, the AMT still taxed 5 million American households in 2017.

Warren’s wealth tax is not indexed for inflation, so it is clear that not only it will pose serious problems upon enactment, but that it would become a growing problem for American taxpayers.  

To be certain, it is not just radical, leftist Democrats who have embraced this type of tax. Senate Finance Committee Chairman Ron Wyden (D-Ore.) has proposed a “mark-to-market” capital gains tax system which would impose a similar annual tax on illiquid assets. As explained in Vox, “For wealthy Americans who report income above $1 million or assets above $10 million for three consecutive years, taxation would no longer be tied to when people sell their stocks, artwork, or houses. It would instead happen every year that the asset gains in value.” 

This proposal is eerily similar to a wealth tax. It is important not to write off these proposals as radical propositions that will never happen. In fact, these propositions are gaining popularity among mainstream Democrats.   

Despite the repeated failures of wealth taxes around the world, the fight for one in the United States has now begun. If a wealth tax is implemented, it would defy the Constitution, harm the economy, give the IRS immense, invasive power, pose several compliance and enforcement costs, and would create a growing problem for American taxpayers.