This is Yves. We have repeatedly emphasized that, while emotionally appealing, wealth taxes do not work well in practice. Even the most profitable version of a wealth tax, called an inheritance tax, fails to capture the gain of the rich. In the United States, as we have noted, the IRS has lost every major real estate appraisal case since 1981.
This article by Richard Murphy does a good job of explaining why a wealth tax is not a great way to try to skin a cat, and describes why taxing income would be much more effective in curbing the excessive growth of the wealth class. billionaires.
By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, Director of the Corporate Accountability Network, Member of Finance for the Future LLP and Director of Tax Research LLP. Originally published on Finance the future.
I was asked to comment Brazil’s proposal for a global wealth tax of 2% per year for billionaires by a journalist yesterday. Here is what I wrote to them:
Everyone who has never been involved in the practicalities of tax collection loves the idea of a wealth tax. And in principle, I agree with them. It would be great if we could tax the wealth of billionaires. THE inequality between them and everyone else is economically destructive.
However, I have been involved in the practicalities of tax collection for decades and that is why I cannot be enthusiastic about this idea. Issues with imposing a global wealth tax include:
- Find wealth.
- Prove that someone owns it
- Agree on the value of this wealth: what are private businesses, works of art, racehorses, esoteric properties and exceptionally rare wines, and much more, really worth?
- Collect the money before the billionaire disappears to a place that refuses to cooperate with this tax
- Repeat the process year after year.
Any tax authority attempting to undertake this exercise will need access to a large number of valuation experts, an arsenal of lawyers and a bottomless pit of funds to tackle legal disputes with billionaires that she is trying to impose.
Alternatively, countries could have:
- Very progressive income tax rates
- Capital gains tax rates aligned with income tax rates
- Progressive inheritance taxes with strictly capped reliefs for professional assets which do not require activeonce in a lifetime reviews
- Progressive Corporation tax rates, particularly for private companies
- Close business and trust rules that allocate income from private corporations and trusts annually to beneficiaries so that personal tax rates owed on these amounts are not avoided by hiding them in legal entities.
My solution is not perfect. However, this measure is much more likely to succeed than the 2% wealth tax and will likely raise much more money at less cost. If this is the real goal, rather than political posturing, then pragmatism is preferable.
I stick to that.
This is why I wrote the Report on wealth taxation, because that’s my goal. I don’t like postures. I’m into practical solutions. I suggested what it looks like.
