Por César Martínez
According to EU Commission statistics, general taxes on net-wealth are rare in the EU. There are several taxes on the possession of a specific type of assets in 8 Member States. However, net-wealth is used as a taxable base in only three EU countries: Spain and France have a genuine net-wealth tax, while the Netherlands has a provision in the personal income tax which uses the taxpayers’ net-wealth to calculate the tax due. Granted, the number of general wealth taxes has declined over the last decade (since 2005, it has been abolished in Finland, Luxembourg and Sweden). Nevertheless, the debate on the reintroduction of this tax has recently re-emerged in many European countries, in light of relevant research (above all, those lead by Thomas Piketty) that depict inequality rates have continued to rise in our societies.
Traditionally, net-wealth tax is meant to serve different purposes. Firstly, it can be a useful tool to achieve greater equity in the distribution of the tax burden. We can illustrate this idea with an example. Let us assume that Paul and Mary earn the very same income in 2015 (€30,000). Let us further assume that the net assets of Paul are valued at €1,900,000, while those of Mary barely reach €60,000. Were they only subject to a standard income tax, the tax due by Paul and Mary would be identical (eg. €3,000), despite the fact that they have a clearly different financial capacity. The combination of the income tax scheme with a tax scheme based on net-wealth may redress this unfair situation, imposing a heavier tax burden on Paul and thereby fulfilling the ability-to-pay principle, which is enshrined in the Constitution of several Member States. Moreover, in the framework of the current worldwide concern about the distribution of wealth, empirical studies show that the implementation of a net-wealth tax has a redistributive impact in those countries where a high exemption has been established. In addition, this kind of tax may foster a more productive use of assets, since business assets are usually exempt from taxation. Finally, wealth-based taxes may strengthen the capacity of the tax authorities to levy other taxes, such as income and inheritance taxes. This is because the application of a tax based on wealth improves the information on taxpayers in the hands of tax authorities, which can be relevant to check the accuracy of other tax returns. This census function can be very useful to avoid fiscal fraud.
Wealth-based taxes are not exempt from difficulties. Its critics argue that this type of taxes causes capital flight and that they may therefore bring about a net loss of tax revenue. This argument can be seriously challenged by the remarkable progress achieved on tax information exchange, taking into account that assets may be taxed wherever they are located. One could also say that wealth tax punishes the thrifty while rewarding the extravagant. This may not be completely exact, since it is not a matter of taxing savings but large accumulation of assets. Finally, valuation issues often arise when dealing with wealth tax. In fact, a non equitable valuation of different kind of assets was behind the judgement of the German Constitutional Court declaring wealth tax (Vermögensteuer) unconstitutional.
In short, it is an interesting and controversial issue that deserves an in-depth and detailed discussion.