Wealth tax
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A wealth tax is generally conceived of as a levy based on the aggregate value of all household holdings actually accumulated as purchasing power stock (rather than flow), including owner-occupied housing; cash, bank deposits, money funds, and savings in insurance and pension plans; investment in real estate and unincorporated businesses; and corporate stock, financial securities, and personal trusts.[1]
Existing net worth taxes
France: A progressive rate from 0 to 1.8% of net assets. In 2006 out of €287 billion "general government" receipts, €3.68 billion was collected as wealth tax. See Solidarity tax on wealth.
Switzerland: A progressive wealth tax with a maximum of around 1.5% may be levied on net assets.[2] The exact amount varies between cantons.
Liechtenstein
Netherlands: Interest income is taxed like a wealth tax e.g. a fixed 1.2% out of an assumed yield of 4% is a rate of 30%. See Income tax in the Netherlands.
Norway: Up to 0.7% (municipal) and 0.4% (national) a total of 1,1% levied on net assets exceeding Nkr. 470,000.
Greece
India: Wealth tax is 1% on wealth exceeding Rs 30,00,000. However, non-residents returning to India are given exemption for seven years.
Details
Some governments require declaration of the tax payer's 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 be 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 advanced welfare states with a relatively high government spending to GDP rate.
Some European countries have abandoned this kind of tax in the recent years: Austria, Denmark, Germany (1997), Sweden (2007), and Spain (2008). 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, although the Window Tax of 1696 was based on a similar concept.
Property tax
In the United States, property taxes are annual taxes on the market value of real estate (ranging from about 0.4% in Alabama to 4% in New Hampshire) 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 could have increased substantially as well). 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 in favor
In 1999, Donald Trump proposed a once off 14.25% wealth tax on the net worth of individuals and trusts worth $10 million or more. Trump claimed that this would generate $5.7 trillion in new taxes, which could be used to eliminate the national debt.[3]
Arguments against
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, ultimately, a net loss in tax revenue. Among other things, the article stated, "Eric Pichet, 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."[4] And wealth taxes generally have high management costs, for both the taxpayer and the administrating authorities, compared to other taxes. Per one study in the Netherlands the aggregated cost of the tax’s yield was roughly five times that of income tax.[5]
See also
Notes
- ^ Edward N. Wolff, "Time for a Wealth Tax?", Boston Review, Feb-Mar 1996.
- ^ Switzerland Wealth Tax, Lowtax.net
- ^ The Tax Prophet. Donald Trump’s Wealth Tax Proposal, 28 November 1999
- ^ Washington Post. Old Money, New Money Flee France and Its Wealth Tax, 16 July 2006
- ^ Wealth Tax in Europe : Why the Decline ? [1]