European Commission (2015). Tax Reforms in EU Member States,
Working Paper no. 58, secton . .
WT – wealth tax(es); taxaton of wealth
. . WEALTH AND INHERITANCE TAXES FROM A REDISTRIBUTIVE PERSPECTIVE
. .1. Introducton
- stocks of wealth increasingly seen as a potental base for taxaton
- WT – atractie as a way of addressing concerns relatng to distributve justce Pikety
- EU MS leiy WT and taxes on transfers of wealth; most commonly: real estate and land taxatonn
then inheritance tax
Italyn Spainn France and the Netherlands iarious forms of net wealth taxaton
- reienue-raising potental:
taxes on the possession or transfer of real estate or land – ca. 3 %;
inheritance and gif taxes – 0.6 %;
net wealth taxes – 0.5 % of the tax reienue.
- goiernments – try to steer away from taxes on labour (to foster growth)n thus the asset-based
taxaton becomes a part of the discussion
. .2. Wealth taxaton
- WT – regarded negatiely in recent decades; tendency of rates to be loweredn scope reduced;
arguments:
WT was not optmal for efficiency reasons
High leiel of tax avoidance
Administratve costs of WT
- Yet: now the shif of the debate is more towards the general wider efects of the inequality of
wealth distributon
The arguments:
Diamond and Saez; Jacobs – the reliance on labour taxes at the detriment of capital and WT in economic
theory
- labour and consumpton taxes alone do not seem able to make high-income earners contribute
effectiely (the distintti betweei napital aid labtur iintme bentmes blurred at the ttp tf the
iintme snale, the ntrrelatti betweei eariiig tpptrtuiites aid the prtpeisity tt save is ptsitvee
- tax rates applied to the highest incomes are limited – there is a need to preserie the positie
incentie effects on labour supply and human capital investment; ttp perstial iintme tax rates are
btuid by the CIT rate, whinh ants as a ‘banksttp’, aid whinh, ii turi, is limited by iiteriattial tax
ntmpettti
- wealth is more concentrated compared to incomen and thus net asset taxaton could beneft
borrowing-constrained householdsn and could potentally haie a greater redistributie effect
Also: the practcal feasibility of WT is improving
- internatonal standards on third-party reportng & on informaton exchange relatng to asset
holdings and capital income the aioidance of capital taxaton is less profitable
- new standardsn falling cost of managing large databases lower administratve costs of WT
, - exchange of informaton (net wealth countries) useful way of checking the ialidity of capital
income reportng
Arguments for WT wealth is a source of utlity independent of income (the saiing of wealth is consistent
with such an interpretaton)
- wealth as ‘insurance’ and consumpton smttther minimizes the effect of a temporary reducton
in incomen allows indiiiduals to maintain the same lifestyle throughout lifetme
- wealth as conferrer of power power that results from the command oier resources; proiides an
adiantage in bargaining situatonsn creates disproportonal politcal infuence and encouraging rent-
seeking
For all these reasons: wealth distributon maters
- tax design should thus 1) be eialuated on how it redistributes wealth in additon to income and 2)
wealth should be considered among possible tax bases
- household income and wealth – positvely correlated (not necessarily highly income thus is not a
good proxy for wealth)
- current income tax systems: do not mitgate growing income inequality (factors playing a role:
limitatons on IT progressiiityn the unequal inital capital endowments)
WT proponents arguments in faiour of the progressiiity of WT (desirability of a more equal wealth
distributon):
- highly unequal distributon of net assets can be a source of macroeconomic instability
US: household debt mitgated consumpton inequalityn but resulted in the pre-crisis growth model
Europe: difcultes in adjustng household portolios to income and wealth important role in depressing
consumpton and growth in the countries most affected by the crisis
- widening asset ownership may encourage entrepreneurial actvity and growth
asset ownership an important prerequisite for accessing creditworthiness
more equitable distributon of assets easement of funding constraints for less wealthy generaton of
entrepreneurial actvity and innovaton and thus in the long run improiement of general economic
performance
wealth inequality can haie an effect on external imbalances (the signifcant effect of the saiing behaiiour
of the wealthiest on aggregate saiings and the responsiieness of consumpton to changes in stocks of
wealth)
stockbased progressiiity would allow higher levels of wealth to be taxed more the income tax system
would then help more accurately to mitgate socioeconomic inequality
. .3. Housing taxaton between efficiency and equity
- consumpton of housing seriices by owner-occupiers historically more faiourable tax treatment;
outdated property ialuatons used as the tax base further increase this adiantage
- to make tax system neutral housing taxaton would need to be aligned with the approach taken
to other forms of investment and to savings
Working Paper no. 58, secton . .
WT – wealth tax(es); taxaton of wealth
. . WEALTH AND INHERITANCE TAXES FROM A REDISTRIBUTIVE PERSPECTIVE
. .1. Introducton
- stocks of wealth increasingly seen as a potental base for taxaton
- WT – atractie as a way of addressing concerns relatng to distributve justce Pikety
- EU MS leiy WT and taxes on transfers of wealth; most commonly: real estate and land taxatonn
then inheritance tax
Italyn Spainn France and the Netherlands iarious forms of net wealth taxaton
- reienue-raising potental:
taxes on the possession or transfer of real estate or land – ca. 3 %;
inheritance and gif taxes – 0.6 %;
net wealth taxes – 0.5 % of the tax reienue.
- goiernments – try to steer away from taxes on labour (to foster growth)n thus the asset-based
taxaton becomes a part of the discussion
. .2. Wealth taxaton
- WT – regarded negatiely in recent decades; tendency of rates to be loweredn scope reduced;
arguments:
WT was not optmal for efficiency reasons
High leiel of tax avoidance
Administratve costs of WT
- Yet: now the shif of the debate is more towards the general wider efects of the inequality of
wealth distributon
The arguments:
Diamond and Saez; Jacobs – the reliance on labour taxes at the detriment of capital and WT in economic
theory
- labour and consumpton taxes alone do not seem able to make high-income earners contribute
effectiely (the distintti betweei napital aid labtur iintme bentmes blurred at the ttp tf the
iintme snale, the ntrrelatti betweei eariiig tpptrtuiites aid the prtpeisity tt save is ptsitvee
- tax rates applied to the highest incomes are limited – there is a need to preserie the positie
incentie effects on labour supply and human capital investment; ttp perstial iintme tax rates are
btuid by the CIT rate, whinh ants as a ‘banksttp’, aid whinh, ii turi, is limited by iiteriattial tax
ntmpettti
- wealth is more concentrated compared to incomen and thus net asset taxaton could beneft
borrowing-constrained householdsn and could potentally haie a greater redistributie effect
Also: the practcal feasibility of WT is improving
- internatonal standards on third-party reportng & on informaton exchange relatng to asset
holdings and capital income the aioidance of capital taxaton is less profitable
- new standardsn falling cost of managing large databases lower administratve costs of WT
, - exchange of informaton (net wealth countries) useful way of checking the ialidity of capital
income reportng
Arguments for WT wealth is a source of utlity independent of income (the saiing of wealth is consistent
with such an interpretaton)
- wealth as ‘insurance’ and consumpton smttther minimizes the effect of a temporary reducton
in incomen allows indiiiduals to maintain the same lifestyle throughout lifetme
- wealth as conferrer of power power that results from the command oier resources; proiides an
adiantage in bargaining situatonsn creates disproportonal politcal infuence and encouraging rent-
seeking
For all these reasons: wealth distributon maters
- tax design should thus 1) be eialuated on how it redistributes wealth in additon to income and 2)
wealth should be considered among possible tax bases
- household income and wealth – positvely correlated (not necessarily highly income thus is not a
good proxy for wealth)
- current income tax systems: do not mitgate growing income inequality (factors playing a role:
limitatons on IT progressiiityn the unequal inital capital endowments)
WT proponents arguments in faiour of the progressiiity of WT (desirability of a more equal wealth
distributon):
- highly unequal distributon of net assets can be a source of macroeconomic instability
US: household debt mitgated consumpton inequalityn but resulted in the pre-crisis growth model
Europe: difcultes in adjustng household portolios to income and wealth important role in depressing
consumpton and growth in the countries most affected by the crisis
- widening asset ownership may encourage entrepreneurial actvity and growth
asset ownership an important prerequisite for accessing creditworthiness
more equitable distributon of assets easement of funding constraints for less wealthy generaton of
entrepreneurial actvity and innovaton and thus in the long run improiement of general economic
performance
wealth inequality can haie an effect on external imbalances (the signifcant effect of the saiing behaiiour
of the wealthiest on aggregate saiings and the responsiieness of consumpton to changes in stocks of
wealth)
stockbased progressiiity would allow higher levels of wealth to be taxed more the income tax system
would then help more accurately to mitgate socioeconomic inequality
. .3. Housing taxaton between efficiency and equity
- consumpton of housing seriices by owner-occupiers historically more faiourable tax treatment;
outdated property ialuatons used as the tax base further increase this adiantage
- to make tax system neutral housing taxaton would need to be aligned with the approach taken
to other forms of investment and to savings
