· The investigators indicate that, with proper planning, payment of the tax in its totality could be reduced
· The Report indicates that the number of tax audits conducted between 2011 and 2014 represents an increase of only about 0.3% of the tax declarations submitted in Catalonia
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The Barcelona Institute of Economics (IEB) has published a new issue of the IEB Report entitled ‘Do We Need a Wealth Tax?’ in which experts analyze the functioning and application of this tax. In her article ‘Wealth Tax: Specific Features and Shortcoming of the Spanish case’, IEB researcher Mariona Mas states that the actual design of the norm “facilities the creation of mechanisms for tax avoidance” by the taxpayers. The applicable limit on income and wealth, which seeks to ensure that the tax is not a confiscatory tax, together with the exemption on shares in family businesses, which aims to provide an incentive to promote business investment, could result in, with a proper planning, the reduction of the wealth tax settlement in almost its entirety. The consequence, according to Mas, is that the actual progressivity of the tax is far removed from that which results from the statutory tax rates: "Having a very progressive rate is of little use, therefore, if its effects are in practice quite limited.”
The researcher offers various simulations in her study to show the potential tax collection. “If we apply the actual tax scheme to an adjusted taxable base that includes current exemptions for holdings in family businesses, the revenue derived would increase by approximately 87% of the wealth tax revenues. If, in addition, we exclude the application of the limit on the tax liability, the potential revenue from this new taxable base would be 4.23 times the actual revenues.
The contribution of Mas reveals more data that put in question the efficiency of the tax and its redistributive function. “If only wealth over 4 million euros was taxed, which represents approximately 10% of the richest taxpayers in 2015, a tax rate of 0.55% would be sufficient to obtain the revenue generated by the current wealth tax.”
In addition to inequities, the tax policy causes inefficiencies and increases the costs for managing it. For these reasons, the researcher advocates a policy change if the goal is to achieve a truly redistributive tax.
Mas provides a final reason to explain the low performance of this tax, related to the minimum level of audit to which it is subjected. The data speak for themselves: between 2011 and 2014, the total audit records in Catalonia do not even represent 0.3% of the wealth tax declarations filed.
A controversial tax
IEB researcher, José María Durán, concurs in pointing out that the wealth tax is rife with deficiencies in its regulations and its results. In his editorial article ‘ Do We Need a Wealth Tax?,’ Durán considers it as "a controversial tax but with little impact on revenues" which, in fact, in the European Union only Spain and France levy such taxes, representing only a contribution of 0.3 % and 0.5% on their total tax revenues, respectively.
On the other hand, Duran stresses the difficulties arising from its application due to the administrative problems of having to calculate each year the value of goods as different as real estate, jewellery or works of art, among others. This causes difficulties in explaining various situations, such as the fact that two identical houses can be taxed at different values depending on whether they were bought before or after the burst of the property market bubble. "Examples like this made Germany declare this tax unconstitutional in 1995 for its unequal treatment of different types of assets."
Durán considers that the inevitable special treatments and the difficulties of valuation of goods are inherent to the tax, so he is "skeptical" on its capacity to function as a redistributive tool and ability to reduce inequality.
Alternative methods for redistribution
Researcers Robin Boadway (Queen’s University) y Pierre Pestieau (University of Liège), in their article “The Tenuous Case for an Annual Wealth Tax,” after analyzing the arguments in favor and against wealth tax, conclude that there exist better ways to tax wealth, for instance, by means of a real property tax or the assessment of incomes and capital income. Boadway and Pestieau point to the evidence suggesting that the growing inequality of wealth is due to wealth transfers more than to life-style accumulation. Thus, a tax on inheritance seems to be more desirable than an annual wealth tax.