Capitalism is so intertwined with Dutch culture that residents of the Netherlands celebrate their king’s birthday by setting up vrijmarkten, “free markets,” in town squares to buy and sell household goods. Yet that country appears set to adopt one of the most aggressive capital tax regimes in the world.
The lower house of the Dutch legislature has passed a bill that would tax capital gains at a rate of 36 percent. Unlike most other countries, including the U.S., which tax capital gains when they are realized (when the asset is sold), the Dutch bill would also tax unrealized gains each year. The bill — passed after the country’s supreme court invalidated the previous capital-taxation regime — would force people to pay a tax rate 16 percentage points above the OECD average on income they didn’t really make.
While wealth taxes are usually framed by proponents as responses to high income inequality, the Netherlands has some of the lowest levels of inequality in the developed world. And this tax would apply to everyone who owns stocks or bonds, not just the rich.
Tax enthusiasts shout that billionaires should pay more. But the Netherlands only has 13 billionaires (around the same number as U.S. states Colorado and Arizona), and they can move their wealth elsewhere.
Norway, which has a wealth tax on unrealized gains, has found that even an exit tax hasn’t stopped wealth from fleeing the country. More than a hundred of the 400 richest Norwegians either live abroad or have moved their wealth to relatives in other countries. Unlike Norway, the Netherlands is an E.U. member, making it easier for Dutch residents to move elsewhere in Europe.
Europe writ large has already tried the wealth tax experiment and found it wanting. The 1990s were the peak of European wealth taxes. Many countries have since repealed them after disappointing revenue results and negative effects on business and investment.
Under the Dutch bill, unrealized losses could be carried forward to offset future gains. There’s plenty of populist outrage over inequality now. Imagine what happens when a recession occurs and headlines say: “As the stock market crashes, the wealthiest get huge tax write-offs.”
It’s never just the rich. The Dutch government takes 35 percent of the average worker’s wages in taxes, compared to 30 percent in the U.S. No, healthcare isn’t free there — 45 percent of the costs for government-mandated coverage are paid by individual premiums and 84 percent of the population buys extra coverage on top of that. The standard value-added tax rate in the Netherlands is 21 percent, almost triple the average U.S. sales tax rate. And it’s still a relatively low-tax country by European standards.
What a tragedy if the birthplace of the modern stock market moves to punish the vital form of wealth creation that it pioneered.
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