Wealth tax
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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.[1] 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 and Norway impose a wealth tax, although often with lower rates and higher thresholds of imposition than in France (which France recently 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.[2] See separate article solidarity tax on wealth.
- Switzerland: A progressive wealth tax with a maximum of around 1.5% may be levied on net assets.[3] 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).[citation needed] 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 of wealth tax
In 1999, Donald Trump proposed a one time 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.[4]
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, ultimately, 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."[5]
See also
Notes
- ^ Tax/Spending Burden, Forbes, May 24, 2004
- ^ Annual national accounts - Base 2000, Institut National de la Statistique et des Etudes Economiques, 2000
- ^ 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