Does a broadly applied wealth tax make sense? A report from the 3rd CASE tax workshop
The third tax workshop organized by CASE, the CenEA Centre for Economic Analysis, Lazarski University and the European Commission Representation Office in Poland was held on November 19-20. The Rzeczpospolita newspaper was the media patron of the event.
The main theme of the workshop was taxation of wealth. The scale of public spending resulting from the pandemic, combined with the economic collapse and the resulting drop in tax revenues, has driven strong growth in budget deficits, and thus in public debt. That means gradual limits on spending will be unavoidable. But even more important will be the search for new, socially acceptable sources of tax revenues. Among the potential sources of such revenues being suggested is taxation of wealth, which is all the more justified by how the current crisis is driving an increase in income inequality.
We started our discussion of these issues with three presentations. Michał Brzeziński of the Warsaw University Faculty of Economic Sciences introduced the issue of wealth inequality in Poland. The first important observation is the fact of low level of wealth compared with other European countries. Another interesting issue is the sources of data, their imperfections and methods of estimating assets so as to have a fuller picture of the distribution of wealth in Poland. Dr. Brzeziński also made an attempt to estimate potential revenue from such a tax. Depending on the rate and the extent of the tax, this could be as much as 1.1% of GDP.
Next, Wojciech Kopczuk of Columbia University presented the theoretical and practical advantages and disadvantages of taxing wealth. His starting point was the taxes on income from wealth that operate at the moment in the U.S. (and also in other countries). From the theoretical point of view, today’s taxes are much more effective and easier to implement. Another important observation is that a wealth tax could be effective if it came as a surprise and were a one-off event. It is difficult to meet the first condition in a democratic country, and the second one poses a problem for politicians in any country – because if a temporary regulation works well, why give it up? Dr. Kopczuk also cited Norway as an example of an unstable approach to taxation of particular elements of wealth.
Paweł Bukowski of the LSE presented the results of opinion research in the UK, which show high acceptance of wealth taxation. He also presented the history of how such a tax functioned in Poland almost 100 years ago. And although this experience was not particularly positive, Dr. Bukowski said the introduction of such a tax today seems “difficult, but not impossible.”
Katarzyna Knawa of the Jagiellonian University responded to the presentations; as an tax lawyer, she stressed the need for a precise definition of what is being taxed, and its value. She was very skeptical about the possibility of introducing a wealth tax in Poland. This is an important opinion, because discussions of a wealth tax often avoid the legal and practical aspects.
Michał Myck of CenEA pointed out wealth inequality in Poland, but said the country already has good though unused tools for better distribution of income. First and foremost the personal income tax, with its current weaknesses – low progressivity or in fact a lack or progressivity, as well as non-taxation of farmers. The “Belka tax” on income from capital must also be re-examined, as well as the taxation of inheritances and gifts: solutions that increase effectiveness should be sought in these areas.
Next, the panelists responded to questions from the audience. Together, they pointed to problems related to the practical implementation of a holistic tax on wealth. It’s decidedly better to increase the effectiveness of existing tax instruments, including in particular the personal income tax.
The second day of the workshops saw two long presentations and discussions, the first on excise tax on cars, and the second on support for families. The rest of the second day was devoted to brief presentations of eight papers.
Work is already under way on the fourth tax workshop, during which we’d like to discuss the role of taxes in the European Green Deal.
Dr. Jarosław Neneman