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After years of talk, a powerful head of steam is building behind the idea of a wealth tax on the very rich. Could it actually happen?

While President Biden didn’t include it as a funding mechanism in his new $2 trillion infrastructure plan, White House press secretary Jen Psaki earlier in March pointedly refused to rule it out as part of a larger tax reform package. “Middle-class families are paying more than their fair share,” she said, echoing a favorite Biden talking point. “And those at the top are not doing their part.” Fanning the flames is new research suggesting that the top 1% illegally evade billions of dollars in federal income tax.

A wealth tax is fundamentally different from income tax. It taxes the value of an individual’s net assets—typically including cars, homes, stocks, businesses, real estate, paintings, copyrights, and almost anything else, tangible or intangible, of value. The assets are “net” because their value is reduced by the individual’s debt; the taxpayer must pay a percentage of the net assets’ value every year.

Sen. Elizabeth Warren (D-Mass.) recently reintroduced a wealth tax bill that would impose a 2% annual levy on net assets between $50 million and $1 billion, plus 3% on net assets above $1 billion. If the U.S. adopts a single-payer health care system, the levy on billionaires would double to 6%.

Warren’s bill by itself is no surprise; she has been pushing for a wealth tax since her 2019 presidential run. But the idea seems to be catching on. Seven California state assembly members have recently started the process of amending the state constitution to permit a wealth tax (1% on net assets between $50 million and $1 billion; 1.5% on assets above $1 billion). Washington state legislators have introduced a bill to impose a wealth tax. The Australian Greens Party last weekend called for a 6% levy on the assets of billionaires, and South Africa’s government has been considering a wealth tax.

At least in the U.S., such a tax would have to run a gauntlet of challenges, starting with…

The arguments on the merits. With any fundamentally new idea, reasons against are more numerous and more definite than reasons for. The upside of a wealth tax, Warren says, is that it “would bring in at least $3 trillion in revenue over 10 years” by taxing only 0.05% of U.S. households. But no one knows how much it would raise; the U.S. has never had such a tax. Disregarding any illegal evasion of the tax, we know for sure that America’s wealthy plus their lawyers and accountants would perform prodigies of innovation to avoid the tax legally.

Europe’s experience with wealth taxes is not encouraging to proponents. The Organization for Economic Cooperation and Development reports that 12 countries had broad net wealth taxes in 1990; today only four do. “Decisions to repeal net wealth taxes have often been justified by efficiency and administrative concerns and by the observation that net wealth taxes have frequently failed to meet their redistributive goals,” the OECD says. “The revenues collected from net wealth taxes have also, with a few exceptions, been very low.” Economist Eric Pichet of the University of Bordeaux found that France’s wealth tax, repealed in 2018, cost the government more than it brought in.

As a practical matter, a wealth tax’s merits may be less important than…

The political reality. A wealth tax is highly popular with voters of both parties. A 2019 poll found that 74% of registered voters, including 65% of Republicans, favored the Warren tax. More recent polls have produced similar results. But while GOP voters might back a wealth tax, Republican legislators are highly unlikely to do so. Senate Republicans in March introduced a bill to repeal the closest thing to an existing wealth tax, the estate tax. With only slim majorities in both houses, Democrats today would have a tough time enacting a wealth tax.

Yet even the political challenges may not be the greatest barrier to such a tax. The biggest obstacle, often overlooked, could be…

The legal reality. A wealth tax may well be unconstitutional. The constitution forbids the federal government from imposing “direct” taxes unless those taxes are “in Proportion to the Census or enumeration,” meaning proportional to the population. That’s why a constitutional amendment was required before the federal income tax could be imposed in 1913. But the amendment authorizes only an income tax, not a wealth tax. Could a wealth tax still somehow pass muster? Legal scholars come down on both sides of the question, but the argument against it is substantial. So even if a wealth tax survived a vigorous national debate and made it through Congress, the odds against it getting past the Supreme Court would be nontrivial.

Bottom line, a wealth tax is still a long way from becoming law. The best barometer of its future will be billionaire behavior. Tax avoidance seems to be at least part of the reason Tesla founder Elon Musk left California and hedge fund titan Carl Icahn left New York. When billionaires start fleeing the country, we’ll know the wealth tax is getting traction.