Critics note that many European countries have tried, and subsequently abandoned, wealth taxes, after finding that they had trouble with compliance and that some of their richest citizens hopped on their private jets and moved elsewhere.
But economists advising Sanders and Warren point to Switzerland’s wealth tax as a successful one. And some deep-pocketed Swiss say their wealthy American peers should consider Switzerland’s system.
“Rich people can live with [a] wealth tax,” said Peter Kurer, a former chairman of UBS, Switzerland’s largest bank, and now head of the country’s second-largest phone and Internet provider.
“There are many wealthy people in the United States who don’t pay any taxes at all,” Kurer added, “and this spoils social peace.”
Hitting the wealthy based on their assets is an old practice here, dating to Switzerland’s origins as a unified confederation in the mid-19th century. In the country’s highly decentralized system, where most tax decisions are put directly to voters, wealth taxes have been reaffirmed again and again by citizens, a sign of broad support.
The wealth taxes exist in some tension with banking secrecy in Switzerland, which has allowed foreigners and citizens alike to hide their assets. If Swiss citizens are caught failing to declare something that needs to be taxed, the forgiving system allows them to claim they forgot to do so, with no penalty.
But many wealthy Swiss say authorities still have an eye on their assets. Authorities, meanwhile, say most citizens are honest about their declarations.
Here in Solothurn, a German-speaking state about 50 miles west of Zurich, the wealth tax is so popular that residents opted to increase it by nearly a third in a Feb. 9 referendum, while also trimming corporate rates in a kind of compromise. Each of Switzerland’s 26 states gets to pick its own tax rates, though all must have a wealth tax.
“For the people, it’s normal that those who are more rich than others have to pay more than others,” said Roland Heim, Solothurn’s top finance official, who presided over the tax compromise as a state councilor from the center-right Christian Democratic party.
“It’s a part of justice,” Heim said, speaking in the council hall, where leaders look out onto church spires and the pine-covered backdrop of the Jura Mountains.
Many countries, including the United States and Switzerland, have a progressive income tax system, in which the more you make in a year, the more tax you’re supposed to pay. Wealth taxes differ, since they apply to people’s total net worth, not just what they earn.
Warren and Sanders say a wealth tax would go further than just raising income taxes on the rich, because vast fortunes sometimes dwarf the wealthiest taxpayers’ annual income.
Warren says she would use a wealth tax to pay for universal child care, college loan forgiveness and the elimination of tuition at public colleges. Sanders says he would dedicate the revenue to affordable housing, universal child care and Medicare-for-all.
Surveys suggest that wealth taxes are popular in the United States, with college-educated Republican men the only demographic opposed in a New York Times-Survey Monkey poll in November.
But critics warn they are expensive to administer, easy to evade and often don’t raise as much money as promised. And they say the taxes can punish people who own businesses that appear valuable on paper but generate little in the way of returns to pay the annual tax bill.
“It means you need to take out more dividends from your capital, even if this money would be better used inside your company, for investing or for your employees,” said Pierre Lamunière, who with his family runs Edipresse, a Swiss publishing group.
In Europe, only Spain, Norway, Belgium and Switzerland impose wealth taxes — down from 11 countries in 1990. France scrapped its wealth tax in 2018, after tens of thousands of millionaires were estimated to have left.
But the economists who have advised both the Warren and Sanders campaigns on wealth taxes say Switzerland’s is an example of one that works. Switzerland collects wealth tax revenue equivalent to about 1 percent of its gross domestic product — roughly similar to the estimates of the Warren plan, said Gabriel Zucman, an economist at the University of California at Berkeley.
“This shows that it’s possible to generate sizable sums with a wealth tax,” Zucman said. He said Switzerland’s long history with wealth taxes “suggests that such taxes can work in the long run.” And he pointed to the fact that Switzerland has the highest amount of wealth per adult in the world — $565,000 — as a sign that “taxing wealth does not in itself kill wealth accumulation.”
In Switzerland, researchers have found that the higher the wealth tax rate, the lower the declared wealth, suggesting some correlation between tax evasion and how much tax is being charged. “When you lower tax rates, this has triggered pretty strong increases in the wealth that was declared,” said Marius Brülhart, an economist at the University of Lausanne. “We estimate that about half of this is due to evasion behavior.”
But Brülhart said that since U.S. banks are required to disclose more to tax authorities than Swiss banks are, evasion in Switzerland wouldn’t necessarily translate to the United States.
Zucman noted that since Americans are liable for U.S. taxes no matter where they live, they wouldn’t have the incentives that Europeans do to move abroad when faced with wealth taxes. He also said he and fellow Berkeley economist Emmanuel Saez have tried to learn from the European examples to advise better policies for Sanders and Warren.
The candidates are proposing a federal tax, eliminating the problem of tax authorities competing with each other to drive taxes lower.
The candidates’ proposals would hit only the ultra-wealthy — Sanders would target households with more than $32 million and Warren more than $50 million — reducing complaints that someone might not have the resources to pay a tax.
The candidates are also talking about more-aggressive rates than are found in Switzerland. Sanders wants tax rates of 1 to 8 percent of a person’s wealth, while Warren advocates a 2 to 3 percent tax.
Here in the Alps, the highest state wealth tax rate is 1 percent. Many areas charge 0.5 percent or less. With its new increase, Solothurn’s top marginal rate will be 0.26 percent.
“The Swiss wealth tax, I think it’s quite a successful tax from many angles,” said Hansjörg Wyss, a Swiss billionaire and philanthropist estimated to be Switzerland’s third-richest citizen by Forbes.
But Wyss — who built a medical device empire in Solothurn before selling it to Johnson & Johnson in 2012 — said the Democratic candidates are going too far in their wealth tax proposals.
“The wealth taxes that Warren and Sanders want are crazy,” he said. “A 6 percent wealth tax is not possible. The reason is, there has to be a relationship between what someone can earn on a fortune or investments.”
Wyss now lives in Wyoming, so he no longer pays Swiss wealth taxes. As a U.S. taxpayer, he has come to recognize why some people see the system as unfair. “I pay much less than anywhere in the world,” he said. “Because U.S. taxation — I do a huge amount of charity work, so I get tax deductions. So my tax rate is lower than my secretary’s.”
The U.S. discussion has echoed back to Switzerland. Mattea Meyer, a member of parliament who is campaigning to become co-chair of the Social Democratic Party, has proposed a national 2 percent wealth tax on people with assets above $1 billion, citing the U.S. discussion as inspiration. “It’s not possible that we allow ourselves to be blackmailed by [billionaires], or to always say, ‘Well, if we don’t allow them to pay no taxes or a small amount of taxes, they’ll leave Switzerland,’ ” she said.
The state of Solothurn isn’t bursting with the super-wealthy. The saying goes here that to attract rich people, you need a lake, and Solothurn only has mountains and a river. Small factories stretch along the river and the region’s railway lines, employing many of the 273,000 residents.
Josef Maushart is the owner of Fraisa, a company that make high-precision metal tools. As a Christian Democratic member of Solothurn’s state council, he helped negotiate the tax deal that will send his personal tax bill spiking by tens of thousands of dollars a year. And he said Solothurn’s wealth tax may need to go higher.
“We are still pretty far away from what people at the end of the day would interpret as fair,” he said. And wealth taxes, he says, can help address the frustration fueling the rise of extremist parties.
“Do you think that your children will have a better situation than you do? That was the big promise of the last century, that capitalism improves the situation for all,” he said. “If we cannot keep this promise up, then people will radicalize.”
Quentin Ariès in Brussels contributed to this report.