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Wealth tax

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A wealth tax, often called a capital tax or net wealth tax, is a levy on an entity's total holdings. This tax focuses on the value of assets rather than just yearly income. Assets can include cash, bank deposits, and real estate. They also encompass assets in insurance and pension plans, financial securities, and personal trusts. It can even include ownership of unincorporated businesses. Most wealth taxes are calculated based on net worth. To find net worth, a taxpayer subtracts their liabilities, such as mortgages or other debts, from their total assets.

The mechanism of a wealth tax involves a specific calculation process. A sovereign nation state may require a taxpayer to declare a full balance sheet. This sheet lists all assets and all liabilities. The government then applies a tax rate to the resulting net worth. This rate might be a flat percentage of the total net worth. Alternatively, the tax might only apply to the portion of net worth that exceeds a specific threshold. Some jurisdictions apply these rules to natural persons, while others extend them to legal persons, such as corporations.

Wealth taxes have seen significant changes in usage over several decades. In 1965, eight countries were known to collect revenue through this method. These nations were Austria, Denmark, Finland, Germany, the Netherlands, Norway, Sweden, and Switzerland. The number of countries using these taxes grew steadily for many years. It reached a peak in 1995, when twelve countries reported such revenue. This peak group included France, Iceland, and Italy. However, by 2019, most European countries had eliminated the tax. They did so because of the high costs and difficulties involved in designing and enforcing the rules.

Today, the landscape of wealth taxation is quite varied. As of 2021, five out of 36 OECD countries implement a personal wealth tax. These five nations are Colombia, France, Norway, Spain, and Switzerland. Each country uses different rates and rules. In Switzerland, the tax is a major source of revenue, accounting for 3.6% of total tax revenue in 2017. In Norway, net wealth taxes accounted for 1.1% of total revenue in the same year. Spain saw a contribution of 0.55% from this tax in 2017. These figures show how much different governments rely on these levies.

Specific examples illustrate how these laws function in practice. In Argentina, the tax is called "Impuesto sobre los Bienes Personales." As of late 2021, the country modified its rules to increase the non-taxable minimum. Assets exceeding 300,000,000 ARS are taxed at a rate of 1.75%. In Belgium, the law focuses on securities accounts. A solidarity tax of 0.15% applies to such accounts that reach or exceed €1,000,000. Meanwhile, Italy uses two different types of wealth taxes. One, called IVIE, is a 0.76% tax on real property located outside of Italy. The other, called IVAFE, is a 0.20% tax on financial assets held abroad.

There are ongoing debates regarding the economic impact of these taxes. Proponents argue that wealth taxes can help reduce income inequality. They suggest these taxes make it harder for individuals to accumulate massive amounts of wealth. On the other hand, critics argue that wealth taxes can harm the economy. They claim these taxes might lead to lower GDP growth or the loss of jobs. An OECD study noted that the effect on entrepreneurship is unclear. Despite these debates, G20 leaders agreed in November 2024 to cooperate on taxing ultra-high-net-worth individuals effectively.

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