What Is a Wealth Tax?

Wealth, like income, refers to the economic resources that someone controls. The difference between wealth and income is that wealth generally refers to the stock of resources at any point in time, while income refers to the flow of resources over a period of time. If income tax and commodity taxation are taxes on income flows, taxation on property or wealth is taxation on the stock of income. In Western countries, wealth taxes are included in property taxes. The scope of the wealth tax in the book "Economics of Taxation" by British economist Simon James includes inheritance tax and gift tax. However, the narrow wealth tax is a property tax levied on the entire net assets of the taxpayer, including movable and immovable property. As a result, some countries call this a "net asset tax" and sometimes a "capital tax." Wealth tax is levied on individuals, such as Denmark on married individuals and also on enterprises, but more on enterprises and individuals.

Wealth tax

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Net wealth tax, also known as net value tax, refers to a tax levied annually on the balance of certain assets after deducting related liabilities, that is, net value tax is a property tax based on the net value of property. The tax base includes the net fair market value of all property owned at the appropriate valuation date. In other words, the net worth tax is levied on the gross property minus the debt component and is levied only on the balance after deduction. This tax is similar to general property tax, but it differs in two points: first, it is a tax on one's wealth, not on the property item itself; second, it is a tax on net wealth, that is, on the The difference between personal assets and liabilities is taxed, not total wealth. For example, if a person has a property valued at 1 million yuan, but he has a debt of 750,000 yuan, then the property value of the person is 250,000 yuan. As a result, net worth tax is a new property tax that is adopted by many countries (such as Germany, Switzerland, the Netherlands, India, and Latin America) and uses it as a new source of fiscal revenue. ^[1]

Wealth tax is a relatively controversial tax. There are opponents and dissenters.

Proponents argue that:

1. It reflects fairness. Owning wealth brings greater benefits to owners than cash income from wealth. Including the ability to use savings, control of economic resources, non-cash income and social status. Income tax alone cannot tax all benefits from wealth ownership.

2. The state is the protector of wealth. Those wealth owners who need state protection should pay more taxes than those who do not need state protection.

Think wealth tax is a powerful redistribution tool. It has a wide range of taxes and summarizes all wealth.

4. It is beneficial to strengthen management control and obtain more reliable wealth distribution data.

5. From the perspective of efficiency, wealth tax has less adverse effect on work incentives than income tax; taxing income from wealth rather than wealth itself will motivate people to invest capital in properties with little or no cash income To avoid paying income tax.

Opponents argue:

1. A comprehensive income tax can include tax-paying capacity, that is, the taxation of all natural value-added.

2. From the perspective of fairness, one should not bear another tax. ^[2]

The taxation system of wealth tax is mainly:

1. Taxpayer. Most countries are designated as natural persons, and only four countries, including Germany and India, also tax companies.

2. Taxation object. It is all property owned by the taxpayer in a certain period, including movable and real property. Deduction of debts and deductions of related items are required when calculating taxes.

3. Provisions for allowances. Because this tax is levied on general property, countries have tax allowances, which are generally relatively low, which is 2 to 3 times the income of individuals in the same period. India's net worth tax is mainly levied on the wealthy, with much higher allowances.

4. Tax rates. Most countries use proportional tax rates. It is generally 0.5% or 1%, and a few countries use progressive tax rates ranging from 0.5% to 3%.

5. Collection. Generally, tax declaration is adopted, and the family is the reporting unit, and the spouse or child's property is consolidated. Some countries that levy net worth taxes by the central government report them at the same time as the income tax, or even use the same return. Switzerland and Denmark are levied by local governments. ^[3]