{"id":214,"date":"2021-04-26T20:25:30","date_gmt":"2021-04-26T20:25:30","guid":{"rendered":"https:\/\/rafael-wildauer.com\/?p=214"},"modified":"2022-03-16T14:36:04","modified_gmt":"2022-03-16T14:36:04","slug":"a-european-wealth-tax","status":"publish","type":"post","link":"https:\/\/rafael-wildauer.com\/index.php\/2021\/04\/26\/a-european-wealth-tax\/","title":{"rendered":"A European wealth tax"},"content":{"rendered":"\n

This blog was published first on Social Europe<\/a>.<\/p>\n\n\n\n

A European wealth tax could be a \u2018win-win\u2019 strategy for reducing extreme wealth inequality and funding the recovery from the pandemic.<\/strong><\/p>\n\n\n\n

Covid-19 has swept through Europe with a devastating socio-economic effect leaving many member states struggling to recuperate. Moreover, major social challenges of recent decades\u2014such as the impending climate catastrophe and rising inequality\u2014advance, unabated.<\/p>\n\n\n\n

A pan-European wealth tax<\/a> could provide Europe with the resources it needs to face these headwinds, accruing substantial amounts to foster a fair and green recovery after the pandemic. Measures planned in the context of the European Green Deal are not sufficient<\/a> to achieve the transformation to a carbon-neutral European economy. And the coronavirus crisis has exacerbated inequalities, within<\/a> as well as between<\/a> countries, which a wealth tax would help alleviate.<\/p>\n\n\n\n

Indeed, if used for funding a \u2018greener Europe\u2019, such a tax would impose a significant share of the burden of the socio-ecological transformation on the richest households\u2014the social group with the greatest ecological footprint<\/a>. By being levied at European level, it would also minimise evasion and create a joint tax base, as a fiscal foundation to confront the gamut of contemporary social challenges, marking real institutional progress in the political capacities of the European Union.<\/p>\n\n\n\n

Strikingly high<\/strong><\/p>\n\n\n\n

In the last two decades, the social-scientific community has paid increased attention to wealth inequality: observed levels are strikingly high and, in many cases, increasing. In a recent study<\/a> of 22 EU countries based on data<\/a> from the European Central Bank\u2019s Household Finance and Consumption Survey, we find that the share of total wealth held by the richest 1 per cent of the population is about one third, while the bottom half of the wealth distribution owns only about 3 per cent.<\/p>\n\n\n\n

Such observations give rise to general concerns about fairness, but also more specific reflections on how\u2014indeed whether\u2014open societies can cope with such high and increasing inequality. How can intensified social cleavages and increased instability be avoided? How can the quality of political institutions be sustained? And how can future challenges be confronted, when European tax systems to generate the resources required are only mildly redistributive?<\/p>\n\n\n\n

Against this backdrop it seems obvious to explore novel forms of taxation of wealth\u2014as advocated, for example, by Thomas Piketty<\/a> or Gabriel Zucman<\/a>\u2014which can decrease inequality and increase capacity for public action at the same time. So, our recent study provides plausible estimates not only of wealth inequality in Europe but also of potential revenues from a European wealth tax.<\/p>\n\n\n\n

Clear-cut advantage<\/strong><\/p>\n\n\n\n

One clear-cut advantage of such a tax is that it would affect only a small minority of households\u2014about 3 per cent of the European population, assuming a more-than-reasonable exemption of the first \u20ac1 million of net wealth (total assets minus total debt), and even less with a higher threshold\u2014yet it would eventually benefit all by helping ensure a safe, fair and sustainable future for European economies and societies.<\/p>\n\n\n\n

In our report we analyse four tax scenarios. First is a flat tax (model I), of 2 per cent on household net wealth above \u20ac1 million. Second is a mildly-progressive tax (model II), starting at 1 per cent on net wealth above \u20ac1 million and ending at 3 per cent on net wealth above \u20ac5 million. Third is a strongly-progressive model (model III), starting at 2 per cent on net wealth above \u20ac2 million and ending at 10 per cent on household net wealth above \u20ac500 million.<\/p>\n\n\n\n

The fourth model is highly progressive and is based on Piketty\u2019s suggestion to impose an effective upper limit on the wealth an individual can possess. It is based on long-term scepticism about sustaining and expanding individual freedom, social stability and democratic politics if unchecked wealth accumulation comes with successive concentrations of power. This model introduces a de facto<\/em> wealth cap at around \u20ac260 million, with highly progressive top rates of 60 per cent for wealth holdings beyond that level (1,000 times EU22 average wealth) and 90 per cent for wealth beyond \u20ac2.6 billion.<\/p>\n\n\n\n

Revenue potential<\/strong><\/p>\n\n\n\n

We use ECB data to model the distribution of wealth within the 22 EU countries selected and to estimate the revenue potential of our four designs (see table). Even the flat tax would generate \u20ac192 billion (1.6 per cent of gross domestic product) in annual revenues, according to our estimates. Taxing private household wealth mildly or strongly progressively could \u20ac224 billion (1.9 per cent of GDP) to \u20ac357 billion (3.0 per cent of GDP). Imposing a sharply progressive tax, with an effective cap on net wealth of 1,000 times the average, would generate \u20ac1,281 billion (10.8 per cent) in its first year of implementation, stabilising at a lower level thereafter.<\/p>\n\n\n\n

 <\/strong><\/td>revenue estimate<\/strong><\/strong><\/td>% of GDP<\/strong><\/strong><\/td><\/tr>
model I:  flat tax<\/strong><\/td>\u20ac192 billion<\/td>1.6 per cent<\/td><\/tr>
model II:  mildly progressive<\/strong><\/td>\u20ac224 billion<\/td>1.9 per cent<\/td><\/tr>
model III: strongly progressive<\/strong><\/td>\u20ac357 billion<\/td>3.0 per cent<\/td><\/tr>
model IV: wealth cap<\/strong><\/td>\u20ac1,281 billion<\/td>10.8 per cent<\/td><\/tr><\/tbody><\/table>
Tax revenue estimates for models I to IV, taking evasion effects into account<\/figcaption><\/figure>\n\n\n\n

Estimated tax revenues for models I to IV, reported in billion euro (2017 prices) and in per cent of 2017 GDP for the EU22 (Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Lithuania, Luxembourg, Latvia, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, and Spain)<\/p>\n\n\n\n

The strong revenue potential of a European wealth tax is the flip side of high wealth inequality. Since the richest 1 per cent of all households hold almost a third of Europe\u2019s wealth, taxing this small minority has the potential to generate large revenues\u2014needed not only to limit the devastating impact of the pandemic but also to fund the fundamental transition to a carbon-neutral society.<\/p>\n\n\n\n

There is ample<\/a> evidence<\/a> of the extreme concentration of wealth at the top of the distribution. Our finding of the large revenue potential especially of progressive wealth taxes is thus unsurprising. Designing such a tax along the following principles would also make it practicable:<\/p>\n\n\n\n