In this NERI Research InBrief No. 93, NERI Co-director, Tom McDonnell discusses household wealth tax.
Ireland’s fiscal position is set to deteriorate in the decades to come. It is, therefore, prudent to assess all options for broadening the tax base. One such option is a recurrent tax on net household wealth. Arguments often used in favour of wealth taxes range from equity, to social cohesion to economic efficiency. The main arguments against include worries about capital flight, along with high administrative burdens if it is poorly designed. A net wealth tax has certain advantages from an opportunity cost perspective. Unlike most consumption taxes, it would yield revenue for the exchequer without impinging on the living standards of economically vulnerable households. In addition, if designed correctly, a wealth tax may be less economically distortive than taxes on labour and capital income. We estimate that a net wealth tax with a threshold of liability of close to €3 million would yield close to €800 million annually for the exchequer based on our preferred design. Crucially, this does not imply that just any wealth tax is worth pursuing. Previous wealth taxes have failed for predictable and avoidable reasons. Designers should seek to minimise administrative costs and use a simplified structure with zero or very modest reliefs and exemptions and a high threshold of liability.
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