What is a wealth tax?
What can be taxed?
Your cash, your pension funds, your bank deposits, your shares, your jewelry, your cars, your house, your collectibles including your art pieces, and antiques, your inheritance, fixed assets, your luxury handbags and watches, any asset that could be appraised a monetary value.
The experiment in Europe
It was reported by the Telegraph that actor Gérard Depardieu moved to the Belgian town of Nechin straddling the French border in 2012 to avoid France’s wealth tax. Over time, the tiny, tranquil village of just over 2,000 people evolved into a magnet for scores of wealthy French citizens seeking to dodge Paris’s high-tax regime.
Why did it fail?
It turns out that taxing the rich is like playing a game of whac-a-mole. If you tax them in one jurisdiction, they pop up in another. If you tax only certain classes of assets, they buy up more of other classes.
The net wealth tax seeks to overcome this by taxing everything. But here’s the problem. It costs a lot to track and value rich people’s stuff every year. It’s not so simple to determine the value of each person’s assets. It takes an administrative army to hunt down and valuate everything, everywhere. Keep in mind that the very wealthy – unlike the middle class – has access to wealth planning services and the means to shield themselves from the taxman.
It didn’t raise much revenue.
It was expensive to administer, it was hard on people with lots of assets but little cash, it distorted saving and investment decisions, it pushed the rich and their money out of the taxing countries—and, perhaps worst of all, it didn’t raise much revenue.
Switzerland is cited by WP Jamus Lim as the model example of a wealth tax that works. In Switzerland, the tax-free threshold for a married couple without children is between 50,000 Swiss francs ($50,370) to 250,000 Swiss francs ($251,856). The wealth tax thus affects much of the middle class in addition to the wealthiest families, as one study on the Swiss wealth tax found. If we use the same threshold for Singapore, like Switzerland, many middle-class Singaporeans will be affected.