Sunday 26. September 2021
#199 - December 2016

Taxing the wealthy in Europe

The EU Commission and Apple are at loggerheads over tax penalties. Patrick Zoll sets out the basic issues on fair taxation.

American presidential candidates are not the only people who boast how “clever” they are when facing accusations that, as multi-millionaires, they have not paid a single cent of income tax for many years. There are also thriving corporations based in Europe, such as Apple, McDonald’s and Starbucks, that rely upon the legality of their actions to justify the absurdly low level of taxation of their profits.


Growing global inequality

These examples reveal that the effect of national taxation systems on redistribution is diminishing, which stands in stark contrast to globally increasing income and wealth inequality. This trend is also seen in European countries, especially in Germany, which holds the inglorious position of being top of the tree regarding wealth inequality.


While these countries have seen stagnation in earned income for more than 20 years and, according to the OECD, the low-wage sector with its “atypical employment” has expanded to take a 40% share of all employment, over the same time span there has been a clearly marked increase in corporate income and investment income. As demonstrated by Stefan Bach from the German Institute for Economic Research, however, the tax burden has shifted – especially as a result of the reforms of the 1990s – to the detriment of low-income households while indirect taxes (e.g. VAT, energy taxes) have been increased.


High-income, high-asset households, on the other hand, have seen their tax burden lightened, thanks to the abolition of some taxes (capital tax) and to tax reductions (e.g. corporate tax, flat-rate taxation of 25% on income from investments via a withholding tax). In view of this situation, there is much to recommend a Europe-wide tax on wealth to reduce the impact of the imbalances identified above.


The basic issue of justice

From a pragmatic point of view, it could be pointed out to wealthy individuals that such a growing inequality is in conflict with their best interests. In numerous studies, the International Monetary Fund emphasises that there is a correlation between rising income inequality and a significant slowdown in GNP growth. Put more simply, increasing prosperity for everybody is not achieved by assiduously piling money onto the top of the pyramid, hoping that it will then trickle down, because the upper part of the pyramid can only grow in proportion to the broadening of its foundation.


Independently of any pragmatic aspects, strong normative considerations seem to be in favour of the introduction of such a tax. Empirical findings raise a basic issue of justice. The tax system of a society is unfair if “unearned” increases in assets as a result of capital, property or inheritances are given preferential treatment in relation to increases in assets “earned” as a result of sheer hard work.


This devalues the principle that achievement must be worthwhile and that justice is related to earnings. In addition, asset increases from income sources that have little or no connection to the real economy and thus scarcely benefit the common good are rewarded, in contrast to asset increases generated by hard work.


Wealth tax as a question of fairness

As defined by the recently published book “Taxing the Rich”, by Kenneth Scheve and David Stasavage, professors who teach in Stanford and New York, one could argue that the introduction of a “wealth tax” is related not so much to the issue of inequality, but much more to the question of fairness. According to their analysis, it is justified best as a compensation for the privileged status of the super-rich, i.e. a kind of burden-sharing or recompense for the less well-off in the name of fairness.


One argument usually mainly presented against a “wealth tax” is that as a tool it is inappropriate. Doubts have been expressed that it would be feasible at national or European level, given that financial markets and tax competition are globalised. These objections must be taken seriously. Nevertheless, some convincing problem-solving approaches do exist, such as, for example the ideas presented by Peter Dietsch and Thomas Rixen, both professors of economics, in their book “Global Tax Governance – What’s Wrong With It And How to Fix It”.


If Europe is supporting taxation of this kind, this would be not only fair but also “clever”. This is how we could show that only a united Europe is in a position to make global corporate groups accountable for the common good.

 Patrick Zoll SJ

lecturer in Political Philosophy and Social Ethics at the University of Munich


Translated from the original text in German


The views expressed in europeinfos are those of the authors and do not necessarily represent the position of COMECE and the Jesuit European Office.

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Note: The views expressed in europeinfos are those of the authors and do not necessarily represent the position of the Jesuit European Office and COMECE.