«Taxing Wealth: Past, Present, Future Workshop Proceedings Edited by Caterina Astarita DISCUSSION PAPER 003 | JULY 2015 EUROPEAN ECONOMY UROPEAN ...»
ISSN 2443-8022 (online)
Past, Present, Future
Edited by Caterina Astarita
DISCUSSION PAPER 003 | JULY 2015
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Luxembourg: Publications Office of the European Union, 2015 KC-BD-15-003-EN-N (online) KC-BD-15-003-EN-C (print) ISBN 978-92-79-48662-3 (online) ISBN 978-92-79-48661-6 (print) doi:10.2765/257050 (online) doi:10.2765/208355 (print) © European Union, 2015 Reproduction is authorised provided the source is acknowledged.
European Commission Directorate-General for Economic and Financial Affairs Taxing Wealth: Past, Present, Future Proceedings of the workshop organised by the Directorate General for Economic and Financial Affairs held in Brussels on 13 November 2014 Edited by Caterina Astarita Abstract In times of fiscal consolidation and strong macroeconomic adjustment needs in some EU Member States, the debate on wealth taxation gained momentum, both in the academic and in the policy debate. In this context, the aim of the workshop, held by DG ECFIN on 13 November 2014, was to discuss theoretical and policy issues associated with wealth taxation, including the broad principles and the concrete design challenges of an optimal wealth tax. Different types of wealth taxation have been scrutinised including transmission taxes, housing taxes and the taxation of financial assets. The challenges they may raise have been discussed also with respect to recent experience in particular Member States. The workshop was organised in two sessions: "Taxation of wealth: state of play and rationale" and "Taxing wealth: specific instruments and challenges". The proceedings offer a detailed summary of the most recent research related to various aspects of wealth taxation and carried out by academics and international organisations' representatives.
JEL Classification: F38, H2, H26, H300, H310, H320, H71, H87.
Keywords: wealth taxation, property taxation, inheritance taxation, wealth transfers, tax migration, international exchange of information, tax evasion, tax avoidance.
Contact: Caterina Astarita, European Commission, Directorate General for Economic and Financial Affairs, firstname.lastname@example.org.
1. SUMMARY OF THE WORKSHOP
First session on taxation of wealth, state of play and rationale
Second Session on specific instruments and challenges in taxing wealth
Concluding policy panel
2. KEYNOTE ADDRESS
2.1. LESSONS FROM THE 2014 REPORT "TAX REFORMS IN EU MEMBER STATES"
by Florian Wöhlbier 2.1.1. Introduction and general issues
2.1.2. Income inequality and tax and benefit systems
2.1.3. Wealth-related taxes – renewed debate
2.1.4. Wealth-related taxes – situation in EU Member States and importance for tax revenues
3. SESSION I - TAXATION OF WEALTH: STATE OF PLAY AND RATIONALE
3.1 SOME NOTES ON TAXING WEALTH
by Michael Keen 3.1.1. Introduction
3.1.2. Taxing wealth vs. taxing capital income
3.1.3. Differentiating across assets?
3.1.4. Tax competition and information exchange
3.2 RETHINKING WEALTH TAXATION
by Gabriel Zucman and Thomas Piketty 3.2.1. Introduction
3.2.2. Capital is back
3.2.3. Rethinking wealth taxation
3.3 DISCUSSION OF PRESENTATIONS BY MICHAEL KEEN, GABRIEL ZUCMAN ANDTHOMAS PIKETTY – WEALTH POLICY CHALLENGES AND RECENT DEBATE
by David Bradbury 3.3.1. Background – the rise in global inequality
3.3.2. The changing tax mix
3.3.3. The wealth tax – challenges and issues
3.3.4. International tax evasion and automatic exchange of information
3.4 MUCH TO DO ABOUT NOTHING: THE SOLIDARITY TAX ON WEALTH (ISF) IN FRANCE........ 32 by Alain Trannoy 3.4.1. Introduction
3.4.2. Tax base, schedule and revenues
3.4.3. Evidence on tax migration
3.4.4. Overall assessment: the "ISF" as a rich repellent
3.5 THE DEBATE ON WEALTH TAXATION IN GERMANY
by Stefan Bach 3.5.1. Introduction
3.5.2. Property and wealth-related taxes in Germany
3.5.3. Proposals on personal wealth taxes in Germany
3.5.4. Reform of inheritance taxation in Germany
4. SESSION II - TAXING WEALTH: SPECIFIC INSTRUMENTS AND CHALLENGES.............. 48
4.1. TAXING MORE POST MORTEM FAMILY BEQUEST
by André Masson 4.1.1. Introduction
4.1.2. Our approach in the (French) debate on wealth taxation.
4.1.3. Unpopular wealth transfers taxes
4.1.4. Taxfinh as a remedy to the objections raised by standard inheritance taxation......... 52 4.1.5. Justification of the Taxfinh approach: wealth diagnosis and objectives
4.1.6. The Taxfinh programme: architecture, philosophy and impact
4.2. TAXATION OF WEALTH TRANSFERS
by Robin Boadway 4.2.1. Introduction
4.2.2. Features of Wealth Transfers
4.2.3. The Evolution of Tax Policy Principles
4.2.4. The Welfarist Approach to Bequest Taxation
4.2.5. Alternatives to the Welfarist Approach
4.2.6. Design Issues
4.3. HOUSING: TAX PRESSURE IN EU AND ITS DRIVERS
by Serena Fatica 4.3.1. Introduction
4.3.2. Tax pressure on owner-occupied housing
4.3.3. Distributional impacts
4.4 CHALLENGES OF TAXING FINANCIAL WEALTH
by Gabriel Zucman 4.4.1. Introduction
4.4.2. Offshore private wealth
4.4.3. Multinational corporation tax avoidance
5 4.4.4. The way to go: formula apportionment
5. CONCLUDING PANEL DISCUSSION
Acknowledgements The workshop was coordinated by Caterina Astarita and organised under the supervision of Gilles Mourre (Head of Unit, DG ECFIN) and under the direction of Lucio Pench (Director, DG ECFIN). Maria Stampouli and Cem Aktam provided, respectively, excellent administrative support to the organisation of the workshop and the production of the proceedings. We thank all the participants of the conference for their vivid presentations, insightful discussion and fruitful contributions.
by Caterina Astarita* The debate on wealth taxation gained momentum, both in the academic and in the policy debate, in times of fiscal consolidation and strong macroeconomic adjustment needs in some EU members. In this context, the aim of the workshop was to discuss theoretical and policy issues associated with wealth taxation, not least the broad principles and concrete design challenges of an optimal wealth tax. Different types of wealth taxation have been scrutinised including transmission taxes, housing taxes and the taxation of financial assets. The challenges they may raise have been discussed also with respect to recent experiences in selected Member States. Organised in two sessions, the workshop involved speakers from academia and international organisations.
Lucio Pench (Director of Fiscal Policy in DG ECFIN) in his introductory statement highlighted how, in the aftermath of the crisis, the debate on wealth taxation gained momentum at different levels: policy, academic and public. He recalled some Member States having reintroduced, in the process of reducing large budget deficits, some form of wealth taxation or engaged in the political discussion about the possibility of taxing wealth. Also the academic discourse, reinforced, among others, by the work of Thomas Piketty on the accumulation of wealth, have re-launched a sometimes heated public debate about the economic relevance of taxing wealth with a focus on distributional issues. Pench recalled some of the pros and the cons of taxing wealth, anticipating some possible points of discussion. Furthermore, he widened the perspective of the debate contextualizing it into that of growth-friendly tax policy, with the tax structure in the EU often being mentioned to be skewed towards taxation of labour, while the taxation of less distortive sources of revenue is underused in many countries. He underlined that the political economy dimension is particularly relevant in the context of wealth taxes, regardless of their form, as these are relatively visible and run into strong societal opposition.
Florian Wöhlbier (Deputy Head of the Revenue Management and Tax Policy Unit in DG ECFIN) presented the key messages from the 2014 edition of the joint DG ECFIN and DG TAXUD report "Tax reforms in EU Member States". The report presents recent trends in tax reforms in EU Member States and identifies tax policy challenges for Member States relevant for macroeconomic performance. Wöhlbier put a focus on the section of the report dealing with wealth-related taxes. He illustrated the mitigating effect of the tax and benefit system on income inequality in the post crisis years and provided a short overview of the renewed debate on wealth taxes, also presenting a brief review of wealth-related taxes levied in EU Member States.
First session on taxation of wealth, state of play and rationale
The first session, chaired by Lucio Pench, focused on the state of play and the rationale behind the taxation of wealth. It took a horizontal and comprehensive view at the relevant economic dimensions related to wealth taxation. Pench recalled that the purpose of this session was to look into the policy challenges and the recent debate on wealth taxation (presented by Michael Keen) and the presentation of some arguments in favour of taxing capital income, wealth, and inheritances (by Gabriel Zucman as presenting author of the joint work with Thomas Piketty). Both the interventions were discussed (by David Bradbury). A specific focus on wealth taxes in France and Germany (by Alain Trannoy and Stefan Bach, respectively) were announced. A general discussion with the speakers and the audience concluded the session.
Michael Keen (Deputy Director of the Fiscal Affairs Department of the International Monetary Fund - IMF) highlighted the revived interest toward wealth taxation recalling some related issues such as the marked increase in income inequality and in wealth-to-income ratios along with the strengthening of the perception of unfairness in the post-crisis period. He, then, described the different wealth tax instruments (recurrent, non-recurrent, market and non-market transfers) and their rationale also providing some data about the current state of wealth taxes in OECD countries. Then he focussed on the debate on whether to tax capital income or capital, explaining the conceptual and the practical differences between the two and clarifying the conditions under which the equivalence relation holds. The possibility of differentiating tax rates across assets were discussed with an eye
on the relative reasons and challenges. He concluded by referring to challenges related to international tax competition and the necessary exchange of information.
Gabriel Zucman (Assistant Professor in Economics at the London School of Economics) described the evolution of the wealth-to-income ratios in the richest countries. He explained its increase by referring to the Harrod-Domar-Solow formula on wealth-income ratio and stressed that wealth is becoming increasingly important relative to income. He listed the key rationales for wealth taxation. Furthermore, he explained that given the fuzzy frontier between capital and labour income, a possible solution could be that of imposing a similar tax rate on both especially in the case of a high shifting elasticity between capital and labour income.
Furthermore, he stressed that the difficulty to observe both income and consumption in the upper part of the distribution, makes wealth a valid proxy for income. He then specified that a bequest tax can be desirable on top of capital income wealth taxes and should be designed according to the meritocratic Rawlsian optimum bequest tax rate formula.