Wealth taxes are present in most European countries, but they still form a relatively small share of tax revenues. Indeed, politicians keep referring to wealth as a fat tax base to tap and seem to believe that most of their voters would not object. Yet, they hesitate to go any further. To investigate whether the populistic assumptions of the legislators are correct and why wealth has not fallen victim to their greed, in late 2021, my colleague Sergio Beraldo and I carried out a survey to shed some light on the issue. We focused on Italy and addressed a representative sample of 2,400 individuals by asking them how they regard tax pressure, fair taxation and public expenditure. The results are detailed in an academic article published recently.1
Some results are consistent with expectations. For example, about 85% of the Italian adult population believes that the current tax pressure is too high. This also applies to those on the left of the political spectrum, many of whom would like tax pressure to drop below 30% of GDP. Taxing real estate is deeply resented, especially by the less affluent taxpayers, who probably would incur a liquidity problem and be forced to sell their residence to pay the tax. Moreover, support for a wealth tax drops significantly when it is levied on top of the existing taxes, especially among those who own only one dwelling (their residence) if this were included in the tax base. In regard to expenditure, and once again consistent with expectations, voters on the right of the political spectrum are more inclined to cutting public expenditure by downsizing the welfare state (including public-funded health and education) and reducing or abolishing cash transfers to the poor (the so-called universal basic income).
However, it also appears that taxpayers do not follow the standard narrative in several respects. For example, Italians are not opposed to proportional wealth taxes per se: some 36% of the interviewees believe that most tax revenues should come from wealth taxes, a percentage that rises among the elderly members of the population and those who believe that fair taxation should be well below 40% of GDP. The percentage remains high even among the affluent segments of the population. Moreover, just a minority of taxpayers believes that taxes should be a way of redistributing income or wealth. Instead, they think that fair taxation means taxing each euro at the same rate, regardless of its origin or how the taxman believes that the tax impacts the individual’s wellbeing. This does not rule out redistribution, but emphasizes that support to the have-nots should come from public expenditure, rather than from tax design or privileges. In a word, Italians do believe that the government should help the poor but also that there is no need to punish the “rich” just because they are rich. As mentioned, this attitude is confirmed by their preference for proportional taxation: only 41% of those on the left of the political spectrum support progressive taxation.
In fact, our data suggest that opposition to taxing wealth is due to fears that higher emphasis on wealth as a tax base would come on top of the existing tax burden and thus result in overall heavier tax pressure. Of course, these fears are understandable. First, because legislators who advocate wealth taxes never specify that heavier taxation on wealth would replace other taxes (income and consumption). Second, because Italians do not trust legislators.2 In particular, their attitude towards taxation remains broadly the same regardless of the identity of the taxman (local, national or EU) and of how the revenues are going to be spent.
To summarize, our result show that politicians have good reasons to abstain from rising wealth taxes dramatically or too visibly. On the one hand, people realise that tax pressure is already excessive, fear that the tax-the-rich narrative is just smoke and mirrors, believe that in most cases wealth is well deserved (the role of merit) and, therefore there is no need to “punish the rich”. In contrast with expectations, political leanings are not very important, and self-interest (tax avoidance) does not dominate. Other components play a key role. Most people do believe that wealth is a better proxy than income or consumption for one’s ability to pay and that it is more appropriate if the purpose of public expenditure focuses ion redistribution. Yet taxpayers also understand that wealth comes from skills, efforts and hard work and that penalising them is unfair.
Regrettably, the findings outlined above do not mean that politicians will give up on their efforts to enlarge the tax base and increase taxation on wealth to raise more revenues to finance public expenditure. Although legislators will likely continue to be cautious, they will pursue their goals by keeping a low profile – possibly introducing higher taxation on capital income, keeping manipulating interest rates and taking advantage of the inflation tax.
1 See https://onlinelibrary.wiley.com/doi/10.1111/kykl.12457
2 See https://worldpopulationreview.com/country-rankings/trust-in-government-by-country
Photo by Dario Morandotti
