Democratic presidential hopeful Elizabeth Warren dove headfirst into her campaign on Jan. 25 by proposing a new tax on the rich—an area her party has traditionally danced around.

How would it work?

The Massachusetts senator is calling for a 2 percent levy on household wealth in excess of $50 million, and 3 percent on wealth above $1 billion. The annual asset valuations this would require are relatively simple to calculate for bank accounts and publicly traded investments, but much harder to do for closely held businesses, real estate, and art.

Why tax wealth?

The plan would tax all of a...