13/11/2014 : ECFIN Taxation Workshop - Taxing Wealth: Past, Present, Future

The political, academic and public debate on wealth taxation gained traction in times of strained public finances in many EU Member States and rising inequality concerns. In this context, the 2014 workshop discussed both policy and theoretical issues associated with wealth taxation, including broad principles and concrete design challenges, also illustrated by concrete country experiences. Different types of wealth taxation were reviewed including transfer taxes, housing taxes and the taxation of financial assets. The workshop included speakers from academia, national authorities and international organisations (European Commission, IMF and OECD). The conference was organised in two sessions: "Taxation of wealth: state of play and rationale" and "Taxation of wealth: specific instruments and challenges", followed by a general panel discussion.

The workshop was formally opened by Lucio Pench, Director of DG ECFIN's Fiscal Policy directorate. He recalled that the debate on wealth taxation grew heated, both at academic and at policy level, inter alia fired up by the book by Thomas Piketty. He pointed to supporting and opposing views on wealth taxation, which were subsequently developed in-depth during the course of the workshop: on the one hand, taxing wealth could increase the collection of revenue while rebalancing the tax burden away from the neediest but also from the middle class. On the other hand, there may be several sources of ineffectiveness and economic distortion related to different forms of wealth taxation, such as the difficulty to evaluate one's wealth and the administrative costs along with the risks of tax evasion and capital flight.

Florian Wőhlbier, deputy head of the revenue management and tax policy unit in DG ECFIN, presented key messages from the recently published joint DG ECFIN and DG TAXUD report "Tax reforms in EU Member States 2014", focusing on relevant challenges for tax policy faced by Member States. He illustrated the mitigating effect of the tax and benefit system on income inequality in the post crisis years. He gave a short overview of the renewed debate on wealth taxes, also providing a brief review of wealth-related taxes levied in EU Member States.

The first session of the workshop discussed the policy challenges related to wealth taxation and the recent debate around the taxation on wealth, including on the recurrent tax on net wealth. The presentation stressed the importance of the design and the multiple forms that taxing wealth may take. Taxation of wealth in France and the debate in Germany were examined in more detail.

The second session of the workshop focused on specific forms of wealth taxation. It analysed the economic rationale behind wealth transfer taxation (tax on inheritance), discussed the social and political constraints and referred to some reform proposals recently implemented or under consideration in EU Member States. The taxation of immovable property was examined in detail along with an assessment of the tax burden on owner-occupied housing in the EU. The challenges of taxing financial wealth (including capital flight, tax heavens and valuation of wealth) were also examined.

During the concluding panel discussion, the complexity of the design of wealth taxation was recalled and some of the numerous dimensions covered during the two sessions were summarised: the different instruments used for taxing wealth, the issues related to taxing flows and stocks, the issue of who ultimately bears the burden of wealth taxation (tax incidence), the existence of a blurry frontier between capital and labour income for the high-income earners, the role of transparency and automatic exchange of information in facilitating tax compliance and the serious political economy constraints. The panel also reflected on whether wealth-related taxes may be used to rebalance taxation in Europe, supporting the tax shift away from labour. In this respect, it was considered relevant to identify the least distortive forms of wealth taxations. The paradox that sees, on the one hand, the increasing demand for equity in the wake of the recent crisis and, on the other hand, strong reluctance towards most forms of wealth taxation, was highlighted.

Documents

Copyright of all presentations rests with the authors.

Keynote address

Lessons from the 2014 report "Tax reforms in EU Member States"(768 kB) by Florian Wöhlbier (European Commission, DG ECFIN)

Session 1 – Taxation of wealth: state of play and rationale

Taxing wealth: policy challenges and recent debates(424 kB) by Michael Keen (International Monetary Fund)

Rethinking wealth taxation(562 kB) – by Gabriel Zucman (presenting speaker, London School of Economics) and Thomas Piketty (Paris School of Economics)

Taxing wealth: policy challenges and recent debate(355 kB) – by David Bradbury (OECD)

Forty years after: the solidarity tax on wealth (ISF) in France 1982(634 kB) by Alain Trannoy (University of Aix-Marseille)

The debate on wealth taxation in Germany(153 kB) by Stefan Bach (Deutsches Institut für Wirtschaftsforschung)