How Should We Tax Wealth?
Why Wealth Taxes Keep Failing — Even When Everyone Agrees They're a Good Idea
France tried a wealth tax for over three decades, watched its richest citizens quietly leave, and then scrapped it — raising less revenue at the end than it cost to administer.
The Idea
The logic behind taxing wealth rather than income feels almost self-evident: income taxes hit people for what they earn, but fortunes can sit untouched for generations, compounding quietly while their owners pay relatively little. Taxing the stock of wealth, not just the flow of new money, seems like the more direct lever. So why do wealth taxes so consistently underperform in practice? Three problems keep reasserting themselves. The first is valuation. Income arrives as a number on a payslip. Wealth does not. A privately held business, a farm, a collection of art, a stake in a family company — these have no daily market price. Every assessment involves negotiation, estimates, and litigation. The second problem is liquidity. Wealth is often locked in assets that cannot easily be converted to cash. A founder whose net worth sits almost entirely in their own company might owe a substantial annual tax bill with no obvious way to pay it without selling a chunk of the thing they built. The third is mobility. High-net-worth individuals, almost by definition, have the resources to restructure, relocate, or redomicile. They can move themselves, their assets, or their holding structures across borders in ways that a PAYE worker simply cannot. None of this means wealth taxation is impossible. But it does mean the gap between the elegant theory and the messy engineering is far wider than most political debates acknowledge.
In the World
France's Impôt de Solidarité sur la Fortune, known as the ISF, ran from 1989 to 2017 and became one of the most studied case studies in wealth tax dysfunction. At its peak it applied to net assets above roughly half a million euros, with rates climbing to 1.5 percent annually on the highest bands. That sounds modest — but when an asset yields two or three percent and you are taxed one and a half percent of its total value each year, the effective rate on actual returns becomes punishing. The economist Eric Pichet estimated the ISF drove roughly ten thousand wealthy households out of France between 2000 and 2012 alone — taking their income tax, their consumption, and their investment with them. The financier Gérard Depardieu and others became emblematic of the exodus. By the time Emmanuel Macron abolished the ISF and replaced it with a narrower property wealth tax in 2018, official government modelling suggested the reform could pay for itself by bringing capital back onshore. Sweden, Germany, and Denmark had all quietly wound down their own wealth taxes in the preceding decades, each citing similar combinations of capital flight, administrative cost, and depressed domestic investment. The Scandinavian experience is particularly striking because these are countries with strong institutional capacity and high social trust — precisely the conditions you would expect to give a wealth tax its best chance. If it struggled there, the structural problems run deep.
Why It Matters
This is not an argument that wealth should go untaxed, or that inequality doesn't matter. It is an argument for precision. When the gap between a policy's intent and its implementation is this large, a voter, a citizen, or simply a curious person benefits from understanding where that gap lives. The practical challenges of wealth taxation also illuminate something worth carrying into other policy debates: administrative feasibility is a form of political reality. An elegant redistribution mechanism that triggers capital flight, requires an army of valuers, and generates years of legal dispute may do less to close inequality than a blunter tool applied consistently. Some economists now argue that taxing the returns on wealth — through reformed capital gains taxes, inheritance taxes, or closing loopholes that let unrealised gains pass untaxed at death — may be more tractable than taxing the stock of wealth itself. Others advocate land value taxes, which sidestep the mobility and valuation problems because land, by definition, cannot be moved. Knowing why the headline solution is hard makes you better equipped to evaluate the alternatives being quietly debated in the background.
A Question to Ponder
If you were designing a system to reduce the concentration of inherited wealth, and you knew capital and wealthy individuals could move freely across borders, what would you actually do differently?
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