Wealth tax

• Argentina: It is named Impuesto a los Bienes Personales, on assets above ARS 2,000,000 (approx. US$25,000 at October 2020 official exchange rate), the annual rates are 0.75% for 2016, 0.50% for 2017, 0.25% in 2018, before being raised to 0.75% for 2019.
• Canada: British Columbia has recently implemented a tax on personal homes. The tax is in addition to regular property tax and begins at homes worth more than $3 million Canadian (approx. US$2,255,639.1). The tax is 0.2% on the first million above the $3 million and 0.4% on any value above that. No recognition of mortgages, lien, or taxes due is taken into account.
• France: Until 2017, there was a solidarity tax on wealth on any net assets above €800,000 for those with total net worth of €1,300,000 or more. Marginal rates ranged from 0.5% to 1.5%.[3] In 2007, it collected €4.07 billion, accounting for 1.4% of total revenue.[4] From 2018 onwards, it has been replaced by a wealth tax on real estate, exonerating all financial assets.[5]
• Spain: There is a tax called Patrimonio. The tax rate is progressive, from 0.2 to 3.75% of net assets above the threshold of €700,000 after €300,000 primary residence allowance.[6] The exact amount varies between regions.
• Netherlands: There is a tax called vermogensrendementheffing. Although its name (wealth yield tax) suggests that it is a tax on the yield of wealth, it qualifies as a wealth tax, since the actual yield (whether positive or negative) is not taken into account in its calculation. Up to and including 2016, the rate was fixed at 1.2% (30% taxation over an assumed yield of 4%). From the fiscal year of 2017 onwards, the tax rate progresses with wealth. See Income tax in the Netherlands. In addition to the vermogensrendementheffing, owners of real estate pay a tax called onroerendezaakbelasting, which is based on the estimated value of the real estate they own. This is a local tax, levied by the city council where the property is located.
• Norway: 0.7% (municipal) and 0.15% (national) a total of 0.85% levied on net assets exceeding 1,500,000 kr (approx. US$170,454.55) as of 2019.[7] For tax purposes, the value of the primary residence is valued to 25% of the market value, secondary residences to 90% of the market value, while working capital such as commercial real estate, stocks, and stock funds are valued at 75% of the market value.[8] The Conservative Party and Progress Party in the current government and the Liberal Party have stated that they aim to reduce and eventually eliminate the wealth tax.[9]
• Switzerland: A progressive wealth tax that varies by residence location. Most cantons have no wealth tax for individual net worth less than CHF 100,000 (approx. US$101,010.1) and progressively raise the tax rate on net assets with a top rate ranging from 0.13% to 0.94% depending on canton and municipality of residence.[10] Wealth tax is levied against worldwide assets of Swiss residents, but it is not levied against assets in Switzerland held by non-residents.[10][11]
• Italy: Two wealth taxes are imposed. One, IVIE, is a 0.76% tax imposed on real assets held outside Italy. The values of such assets are determined by purchase price or current market value. Property taxes paid in the country where the real estate exists can offset IVIE. Another tax, IVAFE, is 0.20% and is levied on all financial assets located outside the country, including, so far as the language seems to imply, individual pension schemes such as 401(k)s and IRAs in the US.[12]

Ancient Athens had a wealth tax called eisphora (see symmoria), and a wealth registry consisting of self-assessments (τίμημα), limited to the wealthiest. The registry was not very accurate.[13]^:p.159

Iceland had a wealth tax until 2006 and a temporary wealth tax reintroduced in 2010 for four years. The tax was levied at a rate of 1.5% on net assets exceeding 75,000,000 kr for individuals and 100,000,000 kr for married couples.

Some other European countries have discontinued this kind of tax in recent years: Austria, Denmark (1995), Germany (1997), Finland (2006), Luxembourg (2006) and Sweden (2007).[14]

In the United Kingdom and other countries, property (real estate) is often a person's main asset, and has been taxed – for example, the window tax of 1696, the rates, to some extent the Council Tax, municipal property taxes, and a new mansion tax proposed by some political parties.

The rise of inequality in the United States over the past few decades has incurred debate over new types of progressive taxation. Wealth taxation is a potential tool to raise revenue and reduce wealth disparities. In the 2020 presidential election the idea of a wealth tax was popularized by Massachusetts Senator Elizabeth Warren.[22] Warren, and later Vermont Senator Bernie Sanders, pointed to wealth inequality and the black-white wealth gap as reasons for the necessity of a wealth tax. A paper by Leiserson, McGrew, and Koppgaram (2016) found that median wealth is $97,000 while the mean household wealth is $690,000.[23] The authors argue the "highly skewed distribution of wealth is one of the primary reasons the burden of net worth tax would be highly progressive."

The Gini coefficient is a relevant statistical tool when analyzing the idea of a wealth tax as a means of redistribution. The Gini coefficient ranges from zero to one, zero indicates perfect equality while one indicates perfect inequality.[24] The Gini coefficient, however, can be used to measure both the distribution of wealth and the distribution of income. These are two very different concepts, and thus the unqualified use of the term can be confusing. For instance, when the Gini coefficient is used as measure of income distribution of a population,[25] the figures for the U.S. come out very close to those of other countries. Federal Reserve Bank of St. Louis compared the Gini coefficient for income distribution of various countries and regions. With regard to the United States they found, "Income inequality in the United States is large, despite the U.S. having one of the highest levels of income per capita in our sample. Specifically, the Gini coefficient of the U.S. was 40.46 [in a 0-100 scale] in 2010, very close to the average Gini coefficient of African countries in our sample.".[26] European nations, by comparison, generally have a Gini coefficient for income distribution that is between 0.24 and 0.36. Since 2010 the Gini coefficient for income distribution has risen in the United States and was 0.49 in 2018.[25]

As a measure of wealth distribution, as opposed to income distribution, the Gini coefficient for the United States was one of the highest in the world, at 0.852 in 2018.[27] See also List of countries by wealth equality.

Unlike property taxes that fall on the full value of a property, a net wealth tax only taxes equity (value above debt). This could benefit those with mortgages, student loans, automobile loans, consumer loans, etc.

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, "Éric Pichet, 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."[48][49]

In 2012, the Wall Street Journal wrote that: "the wealth tax has a fatal flaw: valuation. It has been estimated that 62% of the wealth of the top 1% is “non-financial” – i.e., vehicles, real estate, and (most importantly) private business. Private businesses account for nearly 40% of their wealth and are the largest single category." A particular issue for small business owners is that they cannot accurately value their private business until it is sold. Furthermore, business owners could easily make their businesses look much less valuable than they really are, through accounting, valuations and assumptions about the future. "Even the rich don’t know exactly what they’re worth in any given moment."[50]

Examples of such fraud and malfeasance were revealed in 2013, when French budget minister Jérôme Cahuzac was discovered shifting financial assets into Swiss bank accounts in order to avoid the wealth tax. After further investigation, a French finance ministry official said, "A number of government officials minimised their wealth, by negligence or with intent, but without exceeding 5–10 per cent of their real worth ... however, there are some who have deliberately tried to deceive the authorities."[51] Yet again, in October 2014, France's Finance chairman and President of the National Assembly, Gilles Carrez, was found to have avoided paying the French wealth tax (ISF) for three years by applying a 30 percent tax allowance on one of his homes. However, he had previously converted the home into an SCI, a private, limited company to be used for rental purposes. The 30 percent allowance does not apply to SCI holdings. Once this was revealed, Carrez declared, "if the tax authorities think that I should pay the wealth tax, I won't argue." Carrez is one of more than 60 French parliamentarians battling with the tax offices over 'dodgy' asset declarations.[52]

Opponents of wealth taxes have argued that there is "an undercurrent of envy in the campaign against extremes of wealth."[53] Two Yale University/London School of Economics studies (2006, 2008) on relative income yielded results asserting that 50 percent of the public would prefer to earn less money, as long as they earned as much or more than their neighbor.[54][55]

Many analysts and scholars assert that since wealth taxes are a form of direct asset collection, as well as double-taxation, they are antithetical to personal freedom and individual liberty. They further contend that free nations should have no business helping themselves arbitrarily to the personal belongings of any group of its citizens.[56] Further, these opponents may say wealth taxes place the authority of the government ahead of the rights of the individual, and ultimately undermine the concept of personal sovereignty. The Daily Telegraph editor Allister Heath critically described wealth taxes as Marxian in concept and ethically destructive to the values of democracies, "Taxing already acquired property drastically alters the relationship between citizen and state: we become leaseholders, rather than freeholders, with accumulated taxes over long periods of time eventually “returning” our wealth to the state. It breaches a key principle that has made this country great: the gradual expansion of property ownership and the democratisation of wealth."[57]

See also Pollock v. Farmers' Loan & Trust Co.; Sixteenth Amendment to the United States Constitution

In part because a wealth tax has never been implemented in the United States, there is no legal consensus about its constitutionality. As evidenced below, much scholarly debate on the topic hinges on whether or not such a tax is understood to be a "direct tax," per Article 1, Section 9 of the Constitution, which requires that the burden of "direct taxes" be apportioned across the states by their population.

Barry L. Isaacs interprets current case law in the United States to hold that a wealth tax is a direct tax under Article 1, Section 9.[60][61] Given the extreme difficulty of apportioning a wealth tax by state population, the implementation of a wealth tax in the United States would require either a constitutional amendment or the overturning of current case law.[62] Unlike federal wealth taxes, states and localities are not bound by Article 1, Section 9, which is why they are able to levy taxes on real estate.[63]

Other legal scholars have argued that a wealth tax does not represent a direct tax and that such a tax could be implemented in the United States without a constitutional amendment. In a lengthy essay from 2018, authors in the Indiana Journal of Law argued that "... the belief that the U.S. Constitution effectively makes a national wealth tax impossible ... is wrong."[64]^:112 The authors noted that in the 1796 Supreme Court decision for Hylton v. United States, Supreme Court justices who had personally taken part in the creation of the U.S. Constitution "unanimously rejected a challenge to the constitutionality of an annual tax on carriages, a tax akin to a national wealth tax in that it taxed a luxury property."[64]^:114 However, Alexander Hamilton, who supported the carriage tax, told the Supreme Court that it was constitutional because it was an "excise tax", not a direct tax. Hamilton's brief defines direct taxes as "Capitation or poll taxes, taxes on lands and buildings, general assessments, whether on the whole property of individuals or on their whole real or personal estate" which would include the wealth tax.[65] Tax scholars have repeatedly noted that the critical difference between income taxes and wealth taxes, the realization requirement, is a matter of administrative convenience, not a constitutional requirement.

To prevent capital flight, proponents of wealth taxes have argued for the implementation of a one-time exit tax on high net worth individuals who renounce their citizenship and leave the country.[66] An additional constitutional objection to such a tax could be raised on the grounds that it violates the takings clause of the Fifth Amendment, which prohibits the federal government from taking private property for public use without just compensation.[67]

The Federal Constitutional Court of Germany in Karlsruhe found that wealth taxes "would need to be confiscatory in order to bring about any real redistribution". In addition, the court held that the sum of wealth tax and income tax should not be greater than half of a taxpayer's income. "The tax thus gives rise to a dilemma: either it is ineffective in fighting inequalities, or it is confiscatory – and it is for that reason that the Germans chose to eliminate it." Thus, finding such wealth taxes unconstitutional in 1995.[68] In 2006, the Constituational Court revised this decision on the so called "Halbteilungsgrundsatz", stating that "a generally binding absolute upper limit of the [tax] burden around a halfing devide cannot be deduced from the constitution's principle of guarantee of ownership." [69]