“”Many developed countries have repealed their net wealth taxes in recent years,” Cristina Enache wrote for the Tax Foundation in a June report on such levies around the world. “They raise little revenue, create high administrative costs, and induce an outflow of wealthy individuals and their money. Many policymakers have also recognized that high taxes on capital and wealth damage economic growth.”
Depending on how high the tax is set, Enache cautioned, it can erase any gains people might make on their investments. “For safe investments like bonds or bank deposits, a wealth tax of 2 or 3 percent may confiscate all interest earnings, leaving no increase in savings over time.”
Worse, wealth taxes depend on government officials’ ability to accurately assess the value of fluctuating holdings in stocks, property, businesses, and the like. That’s a big ask even if you pretend that tax officials are likely to be honest in such efforts.
“The Amsterdam stock market fell by around 13pc in 2022 as inflation soared – but the tax office assumed investors generated returns of 5.5pc, and taxed them accordingly,” Charlotte Gifford wrote for The Telegraph about the administration of the Dutch wealth tax.
The Supreme Court in the Netherlands ruled that the wealth tax hits people excessively hard relative to actual earnings and that it’s unacceptably discriminatory while also violating rights to property ownership. Just weeks ago, the Dutch court revisited its ruling and found legislative efforts to fix the wealth tax inadequate. Hundreds of thousands of people are now owed refunds.
Enache examines several arguments for wealth taxes, including claims that they encourage more productive use of assets or their transfer to entrepreneurs who are better at producing value. But wealth taxes can also encourage consumption among those who fear they might as well enjoy assets now rather than have them confiscated later. They also incentivize businesses to pay large dividends while discouraging growth.”