The United States has never had a wealth tax. European nations have had such things, but many of repealed them over the last few decades.

Simply put, wealth taxes don’t work for they spur capital flight.

That has not deterred Senator Warren (D-MA) with Reps. Pramila Jayapal (D-WA) and Brendan Boyle (D-PA) from introducing legislation to create a flat 2% annual tax on all household worth above $50 million, which would rise to 3% for anyone above $1 billion. Senator Warren’s estimates that such a tax would raise over $2.6 trillion in new revenue.

Senator Warren’s wealth tax base would comprise a household’s financial and nonfinancial assets, like stocks and land, at market prices, minus a household’s debts. In addition, the 3% rate on net wealth above $1 billion would rise to 6% if a new form of Obama Care went into effect.

Set against income taxes, wealth tax rates seem much lower, but that can be deceiving.

Imagine an investor who owns a long-term bond with a 5% fixed annual yield for a person with over $1 billion in household wealth. A 3% annual wealth tax implies that 60% of the income from the bond would be remitted as tax. The 60% tax on the return to wealth would be in addition to other layers of tax already calculated, including federal, state, and local corporate income taxes, individual income taxes on interest income, capital gains, and dividends, and estate and gift taxes.

A wealth tax would also create a negative economic effect for it would discourage saving and encourage consumption, and potentially lead to significant distortions in international capital markets as foreigners increased their investment to offset the reduction in domestic saving.

Additionally, Senator Warren’s proposed legislation mandates a minimum 30% audit rate for households subject to the tax and a 40% “exit tax” on net worth above $50 million on Americans who renounce citizenship.

Those with means should start to think about exit options before such legislation (or variant thereof) come into force.

Some more thoughts on the proposed wealth tax can be found on Bloomberg.