In some countries we have something called wealth tax. Wealth includes cash, bank deposits, shares, the value of your car, the value of your house etc. The net wealth will be this figure minus your debt. It is your net assets that are taxable[i]. In general there are three different groups that pay this tax: People who have big personal wealth, pensioners with savings and a house with the mortgage paid down, and business owners. In this this blog post I will focus on the business owners.
Overall governments want people to start new businesses because it will add value to the community and it generates jobs. At the same time, the Government makes it difficult for business owners because they collect wealth tax. Since the business owner has to pay this tax on the value of his shares, often dividends from the company are paid in order for the owners to meet this tax burden, resulting in less money to use on innovation and development of the company. When one decide a company’s value, one look at all the assets the company owns like machines, buildings, computers, cars and other manufacturing equipment, again as a net figure after debt[ii] . This value will in various forms (listed or non-listed companies) translate into a share value upon which the owner of the company will have to pay wealth tax. In addition, it does not take into consideration if the value is not a liquid asset or if the equipment is necessary to do the production. This means the wealth tax is a tax on running your business (double taxation). This result is also that new aspiring entrepreneurs face problems when they start up the business idea because of the total tax burden.
One has now looked at the business owner point of view, where the wealth tax seems to be damaging for adding value to the community, create more jobs and create innovation. If one look at the other side, where a Government is depending on getting money from different taxes so they are able to offer public services such as schools, hospitals, nursing homes and so on, the wealth tax seem to contribute a lot, but is it necessary? Would one be able to add more value in general if the wealth tax was abolished? There are only a few countries that have this tax, so it could be interesting to look at how the other countries, that does not have this tax, get enough money to fund the public sector with their taxation system.