More taxes for the super-rich Europe has a range of options. But will they achieve their goals?
European governments with limited budgets seeking to tax the wealthy more to fill gaps in public finances and correct growing inequality may find that direct taxes on wealth are not the most effective solution.
History shows that direct taxes on wealth rarely generate much revenue and often fall short of their primary objectives, tax experts and economists say. They point to a menu of options that work better, including greater scrutiny of capital gains, inheritance taxes and exit fees for those trying to move to a tax haven.
"Concerns about wealth inequality do not mean that governments should resort to net wealth taxes," the IMF said in a recent guide for governments. "Improving taxes on capital income tends to be fairer and more efficient."
In Europe, Switzerland, Spain and Norway have various forms of a wealth tax on asset holders above a certain level, while France and Britain are debating the idea to reduce their budget deficits.
The average top income tax rate across the 38 member countries of the Organization for Economic Co-operation and Development (OECD) fell from 66% in 1980 to 43% today. But taxing a person's assets is not the only, and perhaps not the best, way to get there.
These taxes typically generate modest revenues of only a few decimal points of Gross Domestic Product. This is because taxpayers, especially the ultra-rich, can easily shield their assets by placing them in businesses or funds, in exempt or hard-to-value items such as antiques, or even by moving them to tax havens.
Furthermore, a wealth tax is generally imposed on all types of wealth at the same rate - effectively penalizing those who own lower-yielding assets.
In contrast, a tax on income derived from capital - such as dividends and capital gains, which are profits made when an asset is sold - is levied on current returns.
Since these are generally subject to lower taxes than earned income, supporters of taxes on the wealthy see room for change.
"Favourable tax treatment of profits is an important driver of low effective tax rates among high-net-worth individuals," the OECD said in a report published earlier this year.
Income from capital gains and dividends is taxed at a low, flat rate in countries such as France, Germany, Italy, South Korea, and Japan.
Some economists argue that low taxes on capital encourage savings, investment and entrepreneurship, although OECD research shows that these goals can be achieved in other ways, such as targeted relief.
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