Taxes are among the most effective tools governments have for reducing inequalities and bringing about more inclusive growth. Two new OECD reports released on 12 April 2018 assess how governments are using the taxation of personal savings and wealth and offer recommendations for more effective and more efficient tax policy. OECD’s head of Tax Policy and Statistics David Bradbury, Senior Tax Economist Alastair Thomas and Tax Economist Sarah Perret presented the findings and answered questions.

1. Better design of taxes on
personal savings and wealth to
support inclusive growth
Live OECD Tax Webinar
12 April 2018
@OECDtax | #OECDtaxsavings

2. Overview
The Role and
Design of Net
Wealth Taxes
Taxation of
Household
Savings
1 2
OECD Tax Policy Studies
Supported by the Korea Institute of Public Finance 2

3. Emphasis on the taxation of capital
3
Consider current
approaches Explore the link with
inequality and
inclusive growth

4. 4
Renewed focus on inequality
- 10
0
10
20
30
40
50
60
D1 D2 D3 D4 D5 D6 D7 D8 D9 D10
Average share of income deciles across OECD countries Average share of wealth deciles across OECD countries
Top 1%
%
Top 5%
Distributions of household disposable income and net wealth (2010 data)
Source: OECD (2015), In It Together
Income / wealth deciles

5. Key findings
5
Net Wealth
Taxes (NWTs)
have been in
decline across
OECD countries
NWTs can raise
revenue and
reduce
inequality, but
typically are a
‘second-best’
policy tool
Need to consider
the overall
approach to the
taxation of
capital
Taxes on capital
are important
for inclusive
growth
We tax different
types of savings
differently &
this generally
favours the
wealthy
In some cases,
different tax
treatment helps
achieve
important policy
objectives
Improved tax
policy design can
support inclusive
growth

6. TAXATION OF HOUSEHOLD
SAVINGS
6

7. • Examines how countries tax savings,
covering a wide range of asset types
in 40 countries.
• Calculates marginal effective tax
rates (METRs) across asset types.
• Assesses the distribution of asset
holdings.
• Examines the implications of AEOI
for savings tax policy.
7
Overview of the report

8. METRs combine various factors into a single tax burden indicator
•Focus on a marginal savings decision.
•Calculate NPV of taxes as percentage of NPV of gross returns, over an asset holding period.
•Take account of the impact of multiple taxes, deductions and variations in tax bases.
•Take account of the impact of inflation.
METRs vary with income levels, holding periods, inflation rates, asset returns
We calculate METRs for a wide ranges of asset types
Marginal Effective Tax Rates (METRs)
8

9. 9
METRs vary widely across asset types
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Bank Deposits Shares: taxed
as dividends
Shares: taxed
as capital gains
Private Pensions:
deductible contributions
Residential property: equity
financed; owner-occupied
Residential property:equity
financed; rented
Low income (67%AW) Medium income (100%AW) High income (500%AW)
Averages across 40 countries, 2016
Marginal effective tax rates by asset type
Source: authors calculations

10. 10
0%
20%
40%
60%
80%
100%
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Percentageoffinancialassets Income decile
Other financial assets Mutual funds & managed accounts
Bonds and shares Voluntary pensions
Bank deposits
0%
20%
40%
60%
80%
100%
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Percentageofrealassets
Income decile
Main residence Other residence Other real assets
Averages across 18 European countries, 2012-2015 data*
Real assets Financial assets
Source: authors calculations based on the 2016 Household Finance and Consumption Survey *Spain data for 2010-12
Asset-holding mixes vary with income
Breakdown of households’ asset-holdings across income deciles

11. METRs vary widely across asset types in most countries, thereby distorting
the allocation of savings
The variation in METRs often favours the savings of those that are financially
better off
Automatic exchange of financial account information between tax
administrations is likely to make offshore tax evasion harder
11
Key findings

12. Opportunities
for countries to
increase
neutrality
Opportunities
for some
countries to
increase
progressivity
Case to maintain
concessionary
treatment of
retirement
savings
Opportunities to
improve tax
design,
particularly
regarding private
pensions and
residential
property
Policy implications
12
FOUR MAIN THEMES

13. THE ROLE AND DESIGN OF
NET WEALTH TAXES IN THE
OECD
13

14. • Examines the current and historical
use of net wealth taxes in the OECD
• Assesses the case for and against
net wealth taxes
• Considers practical net wealth tax
design issues
14
Overview of the report

15. 15
The declining use of net wealth taxes
Number of OECD countries levying individual net wealth taxes over time
Source: OECD Net Wealth Tax Questionnaire

16. Characteristics of a net wealth tax
With net wealth of EUR 10 million and a 4% return:
30% capital income tax = 1.2% wealth tax
Similarity with a tax
on personal capital
income
Taxation irrespective
of actual returns
A wealth tax is equivalent to taxing a fixed return on assets
So the effective tax burden  with returns
Taxation on an
accrual basis
Taxation of self-made
and inherited wealth
If asset values are regularly updated, a net wealth tax is
equivalent to taxation on accruals
A net wealth tax is imposed on all net wealth, regardless of its
source
Net wealth tax = Recurrent tax on individual net wealth stocks
16

17. 17
The case for and against net wealth taxes
• Increases progressivity/reduces
inequality
• Leads to very high METRs if imposed
on top of personal capital income
taxes
• Possibly more productive use of
assets (if NWT replaces capital
income taxes)
• Penalises the holders of low-return
assets
• Liquidity issues
• No lock-in effects • Valuation and compliance issues
• Reduces wealth inequality
• No distinction between inherited and
self-made wealth
Similarity with a tax
on personal capital
income
Taxation irrespective
of actual returns
Taxation on an
accrual basis
Taxation of self-made
and inherited wealth
+ –

18. The effect of wealth taxes on ETRs
METRs on different assets with and without net wealth taxes
Source: Data from OECD Taxation of Household Savings
18
-100%
-50%
0%
50%
100%
150%
200%
Bank deposits Corporate
bonds: issued
at par
Shares: 50%
distribution
Private
pensions:
deductible
contributions
Residential
property: debt;
owner-
occupied
Switzerland
-100%
-50%
0%
50%
100%
150%
200%
Bank deposits Corporate
bonds: issued
at par
Shares: 50%
distribution
Private
pensions:
deductible
contributions
Residential
property: debt;
owner-
occupied
Norway
-100%
-50%
0%
50%
100%
150%
200%
Bank deposits Corporate
bonds: issued
at par
Shares: 50%
distribution
Private
pensions:
deductible
contributions
Residential
property: debt;
owner-
occupied
Spain
-100%
-50%
0%
50%
100%
150%
200%
Bank deposits Corporate
bonds: issued
at par
Shares: 50%
distribution
Private
pensions:
deductible
contributions
Residential
property: debt;
owner-
occupied
France
METRs without net wealth tax METRs with net wealth tax

19. 19
Main conclusions
Strong case for addressing wealth inequality through the tax
system, but this does not necessarily require a NWT.
Weaker a case for a NWT on top of broad-based capital income
taxes and well-designed inheritance and gift taxes.
Where the taxation of capital income is low or where inheritance
taxes are not levied, there is a stronger case for a NWT.

20. 20
Wealth tax design recommendations
• Low tax rates, especially if the NWT comes on top of capital income taxes
• Limited exemptions and reliefs
• Exempting business assets, with clear criteria restricting eligibility;
• Exempting personal and household effects up to a certain value;
• Aligning the tax base with asset market values;
• Allowing payments in instalments for taxpayers facing liquidity constraints;
• Continuing efforts to enhance tax transparency and exchange information;
• Developing third-party reporting;
• Establishing rules to prevent international double wealth taxation.

21. AREAS OF POTENTIAL
FUTURE WORK
21

22. Empirically
assessing the
impact of exchange
of information
Taxation of
residential
property
Taxation of
inherited wealth
Expanding METR
modelling to
include corporate
income tax
The design of
capital gains taxes
Use of wealth data
to aid tax/benefit
system design
Further analysis of
capital taxation
from a lifecycle
perspective
Fundamental
reform options
22
Areas of potential future work

23. QUESTIONS
23
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