Why European Wealth Taxes failed (Ft. Mikail & Layman) | Wealth Tax, Europe, EU

The wealth tax was a really a big failure in Europe. But first, what’s a wealth tax? Net wealth Taxes are recurrent taxes on individual net wealth stocks and they are levied on an annual basis. The number of wealth taxes has fallen as back in 1990, there were 12 OECD countries who used them, but in 2020, only three OECD countries Norway, Spain and Switzerland still levy wealth taxes. So what happened? Well, a number of things. When looking over a 50 year period starting from the mid 1960’s, most countries with a wealth tax saw their revenues remain stable or decline over time. But this is quite surprising since some studies have demonstrated that household net wealth has risen considerably, but this somehow didn’t translate to higher wealth tax revenues. Wealth taxes usually account for both a small portion of tax revenues and GDP, with net wealth taxes being the least common form of taxation within the OECD. Switzerland seems to be the most successful in generating wealth tax revenues, with 3.9% of their revenues coming from the wealth tax. Moreover, Switzerland has relatively low tax thresholds for the wealth tax where one of Switzerland’s canton had a threshold of 55,000 US dollars to qualify for a tax on wealth, in comparison to Norway’s 150,000 Euros per person. BTW, for comparison, the euro and dollar are pretty similar in terms of exchange rates. So, is Switzerland the only country that has managed to avoid the wealth tax curse? Well, I don’t think the Swiss should be that optimistic. Because the country doesn’t levy capital gains taxes and most cantons don’t have inheritance or gift taxes. So these wealth taxes may just be a revenue substitute for the lack of these taxes.

Sources:
Wealth Tax Study:
https://www.wealthandpolicy.com/wp/EP6_PoliticsAndDesign.pdf
OECD wealth distribution:
https://www.oecd.org/tax/the-role-and-design-of-net-wealth-taxes-in-the-oecd-9789264290303-en.htm#:~:text=It%20provides%20background%20on%20the,equity%20and%20tax%20administration%20considerations.
France wealth Tax:
https://www.investorschronicle.co.uk/education/2021/02/11/lessons-from-history-france-s-wealth-tax-did-more-harm-than-good/
Washington Post Article:
https://www.washingtonpost.com/outlook/wealth-taxes-often-failed-in-europe-they-wouldnt-here/2019/10/25/23a59cb0-f4ff-11e9-829d-87b12c2f85dd_story.html

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