//What the U.S. Can Learn from the Adoption (and Repeal) of Wealth Taxes in the OECD

What the U.S. Can Learn from the Adoption (and Repeal) of Wealth Taxes in the OECD

Recent discussions of a proposed wealth tax for the United States have included little information about trends in wealth taxation among other developed nations. However, those trends and the current state of wealth taxes in OECD countries can provide context for this new proposal.

The OECD maintains detailed tax revenue statistics going back to 1965 for its 36 member countries. The data includes revenues from taxes on the net wealth of individuals.

According to these data, the number of current OECD members that have collected revenue from net wealth taxes has grown from nine in 1965 to a peak of 14 in 1996 to just four in 2017.

OECD countries with revenues from net wealth taxes on individuals, wealth tax warren

In the OECD data, the countries that collected revenues from net wealth taxes on individuals in 2017 are Switzerland, Spain, France, and Norway. Revenues from net wealth taxes made up 3.62 percent of revenues in Switzerland in 2017 but just 0.55 percent of revenues in Spain. Among those four OECD countries collecting revenues from net wealth taxes, revenues made up just 1.45 percent of total revenues on average in 2017.

In 2018, France dropped its net wealth tax, and Belgium introduced its own version of a net wealth tax.

An OECD report about wealth taxes argues that these taxes can harm risk-taking and entrepreneurship, harming innovation and impacting long-term growth. The report also suggests that a net wealth tax could spur investment and risk-taking. Essentially, the argument is that because a wealth tax would erode the after-tax return for an entrepreneur, that entrepreneur might engage in even riskier ventures to maximize a potential return. However, a wealth tax would be a particularly poor way to encourage risk-taking.

The revenue data from the OECD does not perfectly match the policy changes made by countries. For instance, Austria effectively repealed its net wealth tax in 1994, but revenues from the tax continued to trickle in until 2000. The OECD also conducted a survey of countries regarding their net wealth taxes and the trend for collecting revenues from net wealth taxes is similar to the survey responses.

Additionally, the OECD data definitions leave out two countries that currently administer a net wealth tax, although in unique ways. The Netherlands applies a tax on net wealth as part of its income tax, and Italy has a net wealth tax that applies to assets and property held abroad by Italian taxpayers. Including the Netherlands and Italy, there are six OECD countries that currently administer a net wealth tax on individuals.

Current OECD Countries with a Net Wealth Tax

Source: EY, Worldwide Estate and Inheritance Tax Guide

Country Rate Base

Belgium

0.15 percent

Average value of securities holdings if the value is greater than €500,000 ($571,000) per account holder.

Italy

0.2 percent for financial assets, 0.76 percent for real estate properties

Financial assets and real estate properties held abroad by Italian taxpayers.

Netherlands

0.61 percent to 1.61 percent (effective)

Net wealth excluding primary residence and substantial interests in companies. Part of the income tax.

Norway

0.7 percent at the municipality level and 0.15 percent at the national level

Fair market value of assets minus debt. Tax applies to value of wealth above NOK1.48 million ($174,400).

Spain

0.2 percent to 2.5 percent depending on the region

May differ depending on the region, but generally value of assets minus value of liabilities.

Switzerland

Varies depending on the Canton

Gross assets minus debts.

Some countries have unique exclusions to their wealth taxes. Italy’s net wealth tax has a provision where new Italian residents who relocate to Italy for tax purposes may not be subject to the wealth tax. In Spain, the net wealth tax effectively only applies to taxpayers who do not reside in Madrid, because the city provides 100 percent relief from the tax.

Over the years, countries have repealed their net wealth taxes for various reasons, but economic impact is included in those reasons. French Finance Minister Bruno LeMaire has made it clear that the repeal of the wealth tax in France is part of a reform package designed to “attract more foreign investment.” The French reform package also includes a planned reduction in the corporate tax rate.

The lessons from other countries’ experiences with wealth taxes should inform policymakers in the U.S. as they consider such a proposal. With so many countries having adopted and then abandoned a wealth tax, perhaps the U.S. should avoid adopting one in the first place.

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