coll. - The Role and Design of Net Wealth Taxes in the OECD

Net wealth taxes are far less widespread than they used to be in the OECD but there has recently been a renewed interest in wealth taxation. While 12 countries had net wealth taxes in 1990, there were only four OECD countries that still levied recurrent taxes on individuals net wealth in 2017. Decisions to repeal net wealth taxes have often been justified by efficiency and administrative concerns and by the observation that net wealth taxes have frequently failed to meet their redistributive goals. The revenues collected from net wealth taxes have also, with a few exceptions, been very low. More recently, however, some countries have shown a renewed interest in net wealth taxes as a way to raise revenues and address wealth inequality.

This report seeks to answer four main questions:

• Is there a rationale for addressing wealth inequality through the tax system?

• If so, is a net wealth tax the most appropriate instrument to address wealth inequality?

• What have been the practical experiences of countries that currently have or previously had a net wealth tax?

• Where a country has decided to implement a net wealth tax, how should it be designed to maximise efficiency and equity and minimise tax administration and compliance costs?

The report argues that there is a strong case for addressing wealth inequality through the tax system. Wealth inequality is far greater than income inequality, and there is some evidence suggesting that wealth inequality has increased in recent decades. In addition, wealth accumulation operates in a self-reinforcing way and is likely to increase in the absence of taxation. High earners are able to save more, meaning that they are able to invest more and ultimately accumulate more wealth. Moreover, investment returns tend to increase with wealth, largely because wealthy taxpayers are in a better position to invest in riskier assets and generally have higher levels of financial education, expertise and access to professional investment advice.

While the tax system should help address wealth inequality, the question is whether a wealth tax is the most effective way to do so. The report assesses the case for and against net wealth taxes, looking at efficiency, equity and administrative arguments. It also compares the effects of net wealth taxes with personal capital income taxes and taxes on wealth transfers.

Overall, the report concludes that from both an efficiency and equity perspective, there are limited arguments for having a net wealth tax in addition to broad-based personal capital income taxes and well-designed inheritance and gift taxes. While there are important similarities between personal capital income taxes and net wealth taxes, the report shows that net wealth taxes tend to be more distortive and less equitable. This is largely because they are imposed irrespective of the actual returns that taxpayers earn on their assets. The report also argues that capital income taxes alone will most likely not be enough to address wealth inequality and suggests the need to complement capital income taxes with a form of wealth taxation. The report finds that there is a strong case for an accompanying inheritance tax on efficiency, equity and administrative grounds.