Wealth tax

Because of the broad term "wealth", property tax, capital transfer taxes (inheritance tax, estate tax, gift tax), endowment tax and capital gains taxes are sometimes referred to as "wealth taxes".

Net worth tax

Some governments require declaration of the tax payers balance sheet (assets and liabilities), and from that ask for a tax on net worth (assets minus liabilities), as a percentage of the net worth, or a percentage of the net worth exceeding a certain level. The tax is in place for both "natural" and in some cases legal "persons".

In France, the net worth tax on "natural persons" is called the "solidarity tax on wealth". In other places, the tax may be called, or known as, a "Capital Tax", an "Equity Tax", a "Net Worth Tax", a "Net Wealth Tax", or just a "Wealth Tax".

Most of the governments levying this net worth tax are big spenders with a relatively high government spending to GDP rate. And in no place where this kind of tax is in place does it contribute to more than 0.3% of the total tax intake. It is therefore seen by some people as a statement of philosophy more than a considerable revenue base for the government.

Within Europe, only France, Spain, Greece, Switzerland ,Sweden and Norway impose a wealth tax, although often with lower rates and higher thresholds of imposition than in France (which France recenly implemented some measures to reduce the burden of wealth tax). European countries that have abandoned any tax of this type in the past five years (since 2003) are Austria, Denmark, the Netherlands, and Germany. On January 2006, wealth tax was abolished in Finland, Iceland and Luxembourg. In other countries, like Belgium or Great Britain, no tax of this type has ever existed.

Existing net worth taxes

• France: In 2003 out of €786 billion "general government" receipts, €174 billion was collected on "income and wealth". No further breakout is disclosed. See separate article solidarity tax on wealth.
• Sweden: In 2003 out of a 1,314 billion kronor "general government" revenue, 3.818 billion kronor of "wealth tax" was collected. The tax rate is 1.5% the net worth exceeding 1,500,000 kronor (single person, estate of deceased person (dödsbo), Non-profit institutions serving households (familjestiftelse)), or 2,000,000 kronor (married). And 0.15% on the net worth exceeding 25,000 kronor for any other legal person. The wealth tax will be abolished in 2007.
• Switzerland: A progressive wealth tax with a maximum of around 1.5% may be levied on net assets. The exact amount varies between cantons.

Property tax

In the United States, property taxes are annual taxes on the market value of real estate (ranging from about 0.4% in AL to 4% in NH), assessed both locally and by state governments to pay for local schools, as well as other services and infrastructure of various kinds. Local jurisdictions rely upon property taxes because real estate cannot be moved out of a jurisdiction, whereas paper wealth, income, etc. are more easily moved to other localities where they may be taxed less or not at all.

Over time, the property taxes add up significantly, such that over a generation of 25 years, a family may pay, with annual increases for inflation, up to 50% of a property's market value in taxes (though over the same period of time, the land value of the family's home will typically have doubled, tripled or more). Heavy property taxation and especially sudden, large increases in appraised valuations caused by infrequent or inaccurate appraisals are major causes of local political discontent in jurisdictions throughout the United States and in other countries (see California's Proposition 13).

Because property taxes have often been labeled unfair (other assets such as CDs, equities, or partnerships are taxed rarely, if at all), some properties, such as certain farms or forest land, may have reduced valuations. However, unlike the value of most other assets, the value of land is largely a function of government spending on services and infrastructure (a relationship demonstrated by economists in the Henry George Theorem). This relationship argues that the land value portion of property taxes, at least, satisfies the "beneficiary pay" criterion of tax fairness.

Non-profit (especially church) and government-owned properties are often exempt from property taxes.

Arguments against wealth tax

A 2006 article in The Washington Post titled "Old Money, New Money Flee France and Its Wealth Tax" pointed out some of the harm caused by France's wealth tax. The article gave examples of how the tax caused capital flight, brain drain, loss of jobs, and, ultimatley, a net loss in tax revenue. Among other things, the article stated, "Eric Pinchet, author of a French tax guide, estimates the wealth tax earns the government about $2.6 billion a year but has cost the country more than $125 billion in capital flight since 1998." [1]

See also

• Tax
• Property tax
• Endowment tax