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1 Cristina Enache, The High Cost of Wealth Taxes 1 (2024)

handle is hein.taxfoundation/highcost0001 and id is 1 raw text is: TAX FOUNDATION | EUROPE The High Cost of Wealth Taxes Cristina Enache Economist June 2024 Key Findings • Many developed countries have repealed their net wealth taxes in recent years. Among Organisa- tion for Economic Co-operation and Development (OECD) countries, only four currently impose one: Colombia, Norway, Spain, and Switzerland. • Countries have repealed their wealth taxes for a variety of reasons. They raise little revenue, create high administrative costs, and induce an outflow of wealthy individuals and their money. Many poli- cymakers have also recognized that high taxes on capital and wealth damage economic growth. • The flawed design of these taxes has created problems in countries that have implemented them. In 1997, the German Constitutional Court declared the wealth tax unconstitutional. In the Nether- lands, the Dutch Supreme Court ruled in 2021 that the wealth tax violates European law regarding property rights and non-discrimination. In 2023, the regional governments of Madrid, Andalusia, and Galicia appealed the new solidarity wealth tax to the Spanish Constitutional Court. • Wealth taxes generate double or even triple taxation. 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. Additionally, if the individual's wealth is not growing at a rate higher than the tax rate, the tax will ultimately reduce that individual's wealth. • In the case of Spain, the combination of personal capital income taxes and net wealth taxes results in marginal tax rates well above 100 percent. This means that the entire real return on investment is taxed away and, by saving, the real value of people's wealth shrinks. Spain is the only country in the world that in addition to net wealth and capital gains taxes also levies taxes on capital trans- fers, a financial transaction tax, and one of the highest inheritance and gift taxes in Europe. • Wealth taxes disincentivize entrepreneurship, leading to less innovation and less long-term growth. A wealth tax reduces wages, destroys jobs, and reduces the stock of capital. All income groups are worse off under a wealth tax due to decreased economic activity. The mission of Tax Foundation Europe is to improve lives through tax policies that lead to greater economic growth and opportunity. TAX FOUNDATION EUROPE, RUE D'ARLON 40, 1000 BRUXELLES, BELGIUM taxfoundation.org/eu