Perspectives on Wealth Taxation
Monday, Jan. 4, 2021 12:15 PM - 2:15 PM (EST)
- Chair: Emmanuel Saez, University of California-Berkeley
Wealth Taxation in Developing Countries: Do They and Can They Work?
AbstractThis paper describes the wealth tax experiences in developing countries. Progressive wealth taxes could help developing countries address their extreme inequality and raise tax revenue. However, these countries face specific hurdles in terms of administration and enforcement, including high informality, limited administrative resources, weak enforcement capacity, political capture, and a particular vulnerability to tax havens. Drawing from the specific experience of Colombia, this paper identifies a set of requirements that would be needed to make wealth taxes work in developing countries.
Tax Withholding on Capital Gains as Pragmatic Wealth Taxation for the United States
AbstractThe United States never had a federal wealth tax but has a long experience taxing capital gains, which capture wealth gains over and above savings. Currently, US capital gains taxation suffers from three main drawbacks: (1) the tax can be deferred until realization, (2) it can be avoided entirely if gains are not realized before death, (3) capital gains are taxed at much lower preferential rates. A simple way to resolve all these drawbacks is to impose a recurrent annual withholding tax on the stock of unrealized capital gains above an exemption. This withholding tax is credited back upon realization. This tax would align the taxation of capital gains with the taxation of ordinary income were taxes are withheld as source. It would avoid the enormous cyclicality of mark-to-market capital gains taxation. Among billionaires, unrealized gains constitute the vast majority of wealth and therefore, the withholding tax would restore tax progressivity at the very top, as a wealth tax would. Such a tax would also be valuable for state income tax as taxes on capital gains can be easily avoided by moving temporarily to a zero income tax state before realizing gains. We present revenue and distributional statistics for such a tax and compare it to other proposals such as mark-to-market taxation and direct wealth taxes.
Wealth Taxation in Europe: Lessons and Perspectives
AbstractThis paper describes the wealth tax experiences in Europe. Combining top wealth share estimates along with wealth tax revenue and nominal wealth tax rates, it shows that the wealth tax base was quite narrow in many European countries due to large exemptions as well as tax avoidance and evasion. The paper explains why such exemptions were granted and how they undermined the European wealth taxes leading in many cases to their repeal. Drawing from these lessons, the paper lays out the key features on design and enforcement that are required for wealth taxes to be successful in the European context.
University of Michigan
- H2 - Taxation, Subsidies, and Revenue
- H3 - Fiscal Policies and Behavior of Economic Agents