Senator Elizabeth Warren wants to tax the US rich more - but how do you do it?

In a world where Senator Elizabeth Warren's proposed "Ultra-Millionaire" wealth tax becomes law, rich Americans will have every incentive to try avoiding it.

The plan would levy a 3 per cent tax on net wealth above US$1 billion (NZ$1.5 billion), as well as 2 per cent tax on wealth above US$50 million. The plan would quickly begin reducing some of America's largest fortunes by hundreds of millions of dollars. (Nobody whose net worth is less than US$50m would be affected by the tax.)

Warren, a Democrat from Massachusetts, has proposed a series of aggressive new enforcement policies designed to prevent the wealthy from escaping it. She wants to dramatically beef up funding for Internal Revenue Service enforcement. She's proposing a new requirement that a minimum number of very wealthy taxpayers face an audit annually, aiming to ensure they are not hiding assets from the tax collector.

Most aggressively, Warren's plan would create a new "exit tax" requiring anyone who renounces their US citizenship to fork over 40 per cent of their assets exceeding US$50m of their net worth to the federal government.

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But tax experts disagree over whether these measures would prove effective enough deterrents to evasion.

Warren has emphasised the importance of redistributing the share of the national wealth increasingly owned by the top 1 per cent, arguing her tax could raise about US$2.75 trillion in 10 years, but that money could prove more difficult for the government to claim in practice than in theory.

"This would be a very big experiment," said Josh Bivens, director of research at the Economic Policy Institute, a left-leaning think tank. "You really do have to worry about the issues of mobility, and the avenues people have available to them to evade the tax. "

Some countries have already given up on trying. From 1990 to 2017, the number of countries in the Organization for Economic Co-Operation and Development who imposed some form of wealth tax fell from 12 to just four. Lawrence Summers, who led President Barack Obama's National Economic Council, told CNBC that he is not yet supporting Warren's wealth tax in part because the decline of wealth taxes in Europe.

Some tax experts say that applying wealth taxes to all US citizens could yield different results, in part because the European Union has rules promoting the free movement of capital and individuals. European countries have limits on the exit taxes they can impose, and differences in standards of living may be greater between the US and elsewhere than between relatively similar European countries.

Moreover, wealthy Americans could already receive large tax breaks by moving to Puerto Rico, but few do so, said David Gamage, a professor of law and tax expert at Indiana University.

"It's not that hard to move from France to the Netherlands - or some other neighbouring small country - without dramatically changing your life. It's a much bigger deal to move outside the United States," Gamage said.

Ernie Tedeschi, an economist who served in the Obama administration, noted the 40 per cent "exit tax" mirrors the 40 per cent estate tax currently leveled on fortunes after death.

"This is like the, 'You're dead to me tax'," Tedeschi said. "It effectively cuts off that potential avenue for avoidance. "

Warren's wealth tax could likely also be applied retroactively, several tax experts said, so millionaires and billionaires could not simply flee the country - likely in their private jets - while the Senate takes up the legislation. And there's at least some precedent legally: an "exit tax" already exists under US law, applying taxes on all the US assets of expatriates with net worth above US$2m as if they had been sold, said Ruth Mason, a law expert at the University of Virginia.

In 2010, Obama signed a law requiring foreign banks to report assets held abroad by Americans. Those efforts could help lay the groundwork for tracking capital internationally, experts said.

"Can we find a way to tax the internationally mobile capital of very wealthy people?" said Bivens, of EPI. "My guess is that, in the long-run, you'll need more international co-ordination. But it's doable. "

But the wealth tax's track record may be somewhat sobering for its proponents. Conservatives have already pointed to a study on the impact of wealth taxes in Switzerland, which found it reduced the amount of "wealth holdings," or the amount of wealth held by its citizens.

Switzerland's tax kicks in at a much lower wealth threshold than Warren's, which starts at US$50m. It's not clear if that would make it more or less likely to be evaded, as wealthier taxpayers could have more means at their disposal to sidestep the tax, said Jonathan Gruber, an MIT economist who helped author the study.

"If there's holes in the system, it doesn't matter if it's the US or Europe - once you find the hole, you run through it," Gruber said.

Switzerland's lax banking laws may make it easier for the rich there to game the tax than it would be in the US, said Matthias Krapf, an economist at the University of Basel, Switzerland, one of the study's co-authors.

But because they require comprehensive data on the wealth holdings of the rich, Krapf said, wealth taxes require "big administrative costs" - in this case requiring the deployment of many more IRS agents.

Other big logistical complications remain. Daniel Hemel, a tax expert at the University of Chicago, said wealth taxpayers could easily play "valuation games" as they do over estate taxes.

"How much is that Andy Warhol painting on the wall worth? I don't know, and it's really going to be difficult for every asset other than liquid securities that have daily prices," Hemel said. "Even just trying to think about how much my condo is worth. You can look at Zillow or Redfin prices, but I think I'll choose the lower one. "

Hemel also suggested someone with US$51m in net worth could avoid the wealth tax by distributing it among their children and grandchildren, or in various trusts.

"Should we aggregate family together? Do we only aggregate together family members you like? Or only those you spend Thanksgiving with?," Hemel said.

Jeremy Bearer-Friend, a former Warren aide who provided input on the wealth tax plan, said many of these complications already exist for trying to raise money on estates, which are similarly taxed based on the value of their assets.

"As long as we have taxes, we're going to have evasion," said Bearer-Friend, a tax law professor at New York University. "The question is: 'From a design standpoint, how do we minimise it?'"