Why Europe Axed Its Wealth Taxes

From National Review.com (Mar. 27):

More than a dozen European countries used to have wealth taxes, but nearly all of these countries repealed them, including Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, the Netherlands, Luxembourg, and Sweden. Wealth taxes survive only in Norway, Spain, and Switzerland.

Before repeal, European wealth taxes — with a variety of rates and bases — tended to raise only about 0.2 percent of gross domestic product in revenue, based on Organization for Economic Cooperation and Development data. That is only 1/40th as much as the U.S. federal income tax raises.

Yet for little revenue, wealth taxes are difficult to administer and enforce. They may require taxpayers to report the values of financial securities, homes, furniture, artwork, jewelry, antiques, vehicles, boats, pension rights, family businesses, farm assets, land, intellectual property, and much else. But owners do not know the market values of many assets, and values change over time, so costly wealth-tax compliance would only make accountants wealthy.

And what about wealth held abroad? There is no way the Internal Revenue Service would be able to track down and value everything U.S. residents owned on a global basis.

In the 1970s, the British Labour government pushed for a national wealth tax and failed. The minister in charge, Denis Healey, said in his memoirs, “We had committed ourselves to a Wealth Tax; but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.”

Another problem is that wealth taxes have disappearing tax bases. In Europe, politicians carved out an increasing number of exemptions from tax bases to appease special interests. Exemptions were often provided for farm assets, small businesses, pension assets, artwork, and other items.

And here’s the kicker: Since the base of wealth taxes is net wealth, debt is deductible. That allowed wealthy Europeans to jack up their borrowing and invest in the exempted assets to shrink their tax bases. If a wealth tax were imposed in the United States, the farm lobby would most certainly get farmland excluded. Then rich people would borrow heavily and invest in farmland, thus shrinking the tax base and distorting the economy.

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If liberals want tax fairness, they should push to close existing income-tax loopholes. The tax exemption for municipal-bond interest, for example, would be a good target because it mainly benefits the wealthy. Closing such loopholes would reduce distortions and simplify taxation — the exact opposite effects of adding a wealth tax. [read more]

It’s not about fairness (although that’s what the Left says. Well, they say they want “equality”) it’s about power and control.