Share

Value-added tax vs. wealth tax

https://infographic.statista.com/normal/chartoftheday_17073_wealth_tax_in_the_united_states_n.jpg
https://www.statista.com/chart/17073/wealth-tax-in-the-united-states/

The Wealth Tax is an idea proposed by major presidential candidates such as Senator Elizabeth Warren and hedge fund manager Tom Steyer. One version of this tax was proposed by Elizabeth Warren, where there would be a 2 percent annual tax on an individual’s net worth over $50 million with another 1 percent on top of that reserved for billionaires. 

At the last Democratic presidential debate, Andrew Yang voiced his disagreement with this idea, citing the ineffectiveness of this tax in other countries while favoring his proposed value added tax for boosting an even distribution of economic growth.

Well, just as Yang’s Universal Basic Income isn’t anything actually new and has been done before, Elizabeth Warren’s Wealth Tax has been tried before in some form across the world, with 12 countries, such as Germany and Denmark, having adopted the policy in 1990. But today? Only three countries still have that policy today. What happened?

Well, in France, the wealth tax led to 42,000 millionaires leaving their country between 2010 and 2012. Eventually, Emmanuel Macron called it back in 2018. 

But the US version of this wealth tax is somewhat different from the European version. In the US, there would be an exit tax, where anyone with a net worth over $50 million who renounces their citizenship would lose 40% of their wealth. Additionally, this tax requiring a net worth of over $50 million in order to be taxed has a higher threshold than the European tax. The intent of this is because the net worth of an individual, which is the combination of an individual’s assets and money, is not necessarily a direct reflection of how much money they are actually making. With this threshold, the 75,000 wealthiest households in America will be affected by the wealth tax. 

So while the wealth tax did not have much success from a business perspective in Europe, it is possible that the variations made in Warren’s proposal could work, but it is not a guarantee. 

On the other hand, looking at the 10% VAT (value-added tax) proposed by millionaire tech entrepreneur Andrew Yang, it has also been tried by European countries. The primary difference between Yang’s proposal and what most European countries implemented is that European countries have used a tax that is double Yang’s tax at 20%. But what is a value-added tax? Well, take the production of a Lamborghini as an example. When you start with the raw materials of the cars themselves, they are not worth much. As a result, the value added tax for these materials would be very low. However, when these materials are manufactured into car parts, the tax increases because the value of the car parts is higher than the materials. And when those car parts are eventually turned into the luxury Lamborghini, the tax increases even more. So, the value added tax of 10% would increase when the value of a good increases. 

However, the tax does not seem to be very successful at high rates. In France, the value-added tax of 19.6% was cut to about 6% in 2009. 

So both the value-added tax and wealth tax have been tried in various countries before, although the value-added tax has been more widespread having been used in 166 countries, and both have had their successes and failures in some way somewhere.

Leave a Comment