Why can't states levy property taxes directly?

Conclusion - the business blog

Should the rich pay for the corona debt? A wealth tax or property levy is popular. But not that easy to achieve.

If things go well, the corona crisis will come to an end after the federal election next year. Then the next federal government will have to clean up the shop and put the state finances back in order after the many relief operations. Finance Minister Olaf Scholz said in the Bundestag debate last week that it will be enough if Germany grows out of its debts - but he also says on practically every possible opportunity: He would like the wealth tax to come back.

Now everyone knows that it is mainly about symbolism. The state budget cannot be restructured with a wealth tax. If, for example, Germany could expropriate Amazon founder Jeff Bezos, the richest person in the world, the planned national deficit for the coming year would still not have been settled. To do this, the state would have to completely expropriate the eight richest Germans. For the year after next, it would be the turn of the SAP founders and the Strüngmann brothers, who financed the developers of the German corona vaccine. And how long that will last is open.

When you see how little money the state can get in this way: No wonder that it was too expensive for it to determine the amount of wealth as carefully as the constitutional court demanded, and that the wealth tax was then ignored .

A new overview of wealth taxes and property levies

However, not only Germany is faced with the question of how to properly tax assets. There is now a new overview: The economists Florian Scheuer from the University of Zurich and Joel Slemrod from Michigan University in Ann Arbor have compared international experiences and studies.

At the beginning there is the realization: Correct wealth taxes only exist in Norway, Spain and Switzerland. Most other developed countries have now abolished their wealth taxes. In international comparisons it is often emphasized that there are more “taxes on income” in other countries than in Germany. However, these are often property or real estate taxes, sometimes also inheritance taxes.

The wealth tax is similar to the income tax on capital gains

The wealth tax itself is similar to the income tax on capital gains. They already exist. But the withholding tax of 25 percent in Germany is often unjustifiably low. But it is often forgotten that 25 percent withholding tax for many people is about as much as an income tax of 48 percent, because the distributed profit has already been taxed in the company and then the withholding tax comes on top.

Scheuer and Slemrod emphasize: a wealth tax is not so dissimilar to this final withholding tax when it comes to tax revenue. A wealth tax of one percent comes on the same amount as a flat tax of 25 percent if the wealth makes a four percent return.

The effects are completely different. The wealth tax then acts more like a "flat tax" on wealth: the tax is fixed, regardless of how much return the taxpayer actually earns with his wealth. Anyone who has a million euros in real estate in downtown Frankfurt and earns a nice sum from it pays just as much as someone who has a million euros in real estate in the Eifel, where real estate prices are not rising so quickly. Whether this aspect of wealth tax is in the spirit of the inventor? Hardly likely.

The wealth tax has unpopular consequences

However, that is not the only unpleasant consequence of a wealth tax to be feared. Business start-ups could become even less popular than they are now if successful founders earn less net. Scheuer and Slemrod consider this concern to be exaggerated. It is possible, however, that the rich actually save and invest less, and instead throw their money away. Without these investments, there won't be such good jobs for employees either, fear Scheuer and Slemrod, as a result, the wages of the employees could fall.

It's not just about cheering, but also about tax avoidance and moving away. "With a two percent wealth tax, I have to leave Germany," said SAP founder Hasso Plattner of the F.A.S. a year ago. Such a wealth tax is particularly difficult to pay for young start-ups with a high market value and little profit.

How much does it all matter? How much wealth would not arise in the first place or be withdrawn from the tax office in one way or another? A research committee has calculated this for Great Britain over the past few months. After careful analysis of wealth taxes and studies in other countries, the scientists come to the conclusion: A wealth tax of one percent would reduce taxable wealth in Great Britain by 7 to 17 percent - but only if the wealth tax is optimally designed in all respects. Even small mistakes can cause the country to lose even more wealth. The Commission's final report was presented on Wednesday and now recommends a property levy. Thomas Piketty is in favor of tougher measures, but not everyone will support them.

Is a property tax better?

A property levy is also repeatedly requested in Germany. In the past, such levies were often decided after major catastrophes, for example after pandemics or wars, as we have already described in “Conclusion”, most recently in Germany after the Second World War. Most of the time, politics wanted to redistribute the burden of the catastrophe. Whoever happened to get through the difficult time should pay; should get who had lost a lot.

The property tax appears to have some advantages over the property tax. If you determine the tax once and then spread the payment over many years, the annual burden is not very different from a wealth tax. But the size of the fortune only needs to be determined once. That saves administrative effort. And there is no incentive for the wealthy to cheer or move the money away - at least in theory.

Scheuer and Slemrod agree with the theory, but they point out: "That depends crucially on whether politicians can introduce such a tax quickly and whether they can make it credible that similar taxes are not levied again and again."

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Keywords: Florian Scheuer, Joel Slemrod, wealth, wealth tax, wealth tax
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Taxing wealth is not that easy

By Patrick Bernau

Should the rich pay for the corona debt? A wealth tax or property levy is popular. But not that easy to achieve.

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