A European Progressive Tax on Growth of Wealth

We have to rebuild the ‘house’ of Europe. To me, this house must have a new social security, new labor policies, a new cyclic economy and new taxes for individuals and companies. This petition concerns the ‘roof’ of this new European house that will be a European Progressive Tax on Growth of Wealth for individuals. It will ‘humanize’ capitalism and create equality.

Today the existential borders of both earth and human wellbeing have been reached. Capitalism has to come to an end or it will destroy earth.  As we ‘freed’ the financial markets three decades ago, the accumulation of money (i.e. making money with money) has become the central task of banks. The financial markets do no longer serve the economy, they use the economy to fulfill their task creating bubble after bubble.

How can we reverse this? How can labor and nature be reinstated? How can the financial system brought under control?  The core problem of capitalism today is the accumulation of it which is driven by basic motives we (the people) all have: we all want to become rich. Becoming rich is in the genetics of societies. The free market system gives everyone the opportunity to achieve this goal. There is no wrong in this motive. What is wrong is, that there is no upper bound to the accumulation. A millionaire has achieved this goal. A multimillionaire creates all kinds of social harm because of growing inequality. A billionaire can disrupt a democratic state completely.

This flaw of capitalism must be ‘repaired’, first of all on an individual level. We have to maximize the accumulation of personal capital. I propose a European Progressive Tax on Growth of Wealth for individuals. This tax can replace both tax on income and tax on estates (like property and financial assets). The tax is levied on the growth of your wealth.  A persons individual wealth is the sum of the (book) value of all personal estates within Europe, movable and immovable, like houses, boats, cars, jewelry, paintings and all financial assets, shares, savings accounts, etc. etc. with a value greater than 5000 €. Debts are deducted.  The growth of wealth is the difference of wealth between moment A and moment A + 1 year. The tax rate depends on the current wealth, not on the growth of wealth.

This is an example of what a Progressive Tax on Growth of Wealth could look like:

• a 0% tax-rate for all changes in the total value of your estates below € 100.000,-
• If the value of your possessions increases in a calendar year, to an amount between € 100.000,- and € 200.000,- then 1% tax must be paid on the excess above € 100.000,-.
• If your personal wealth rises the next calendar year again, but remains within the graduated scale (between € 100.000, - and € 200.000,-), 1% tax must be paid on the growth within the graduated scale.
• If the wealth rises in the next calendar year to an amount between € 200.000,- and € 300.000,-, 1% tax must be paid on growth up to € 200.000,- and 2% tax must be paid on the excess above € 200.000,-.
• Etc. Etc.
• The highest tier has a rate of 95%. If the property exceeds 9.5 million euro (M€), a 95% tax must be paid on the capital growth in a calendar year
• If the induvial capital remains the same or descends, no tax needs to be paid.
• An inheritance is growth of wealth for the heir and falls under this progressive Tax on Growth of Wealth.
• Only assets located within Europe are taken into account for the calculation of private wealth.

Only assets within the borders of Europe are taken into account. We accept capital flight. Suppose a private individual has shares of a European company that doubles in value. He will have to pay a Tax on Growth of Wealth. But the private individual is entitled to sell half of his shares and put the money in a savings account on the Bahamas. His wealth within Europe has not increased so he does not have to pay any tax. There is of course a "catch" to this. The money on the Bahamas can never be used (tax-less) in Europe. If, for example, the money is used to buy a house somewhere in Europe, the wealth within the European borders increases, and a tax on the growth of capital has to be paid.

The Growth of Wealth is calculated annually. The growth is measured by the difference between the value of your possessions on January 1 of year X + 1 minus the value on January 1 of year X. If the difference is positive a tax is due. To prevent people to ‘shift’ their capital out of Europa on 31 of December and back on 2 of January large fluctuations in value of capital within a year are included into the calculation.

A Tax on Growth of Wealth is relatively easy to implement and to maintain because we only have to focus on the territory of Europe. We don't need big fraud departments. All necessary registrations needed for the Tax on Growth of Wealth are present in Europe.  Banks are already obliged to report large money transactions. Insurance companies have to report al All it takes is a European tax office that connects the data flows. A process that is already in full swing.

A European Progressive Tax on Growth of Wealth has deep impact on our economy, society and the financial system. Here are some considerations:

1. The value of assets fluctuate by market movements. The Tax on Growth of Wealth includes taxation of the positive fluctuations of the value of these assets. The tax-load therefore dampens these fluctuations. Large fluctuations in the value of assets will disappear because they immediately can have major tax consequences. The explosive housing market, but also the stock market and other financial markets will become much "calmer".
2. Tax on Growth of Wealth expresses a new form of justice, solidarity and ethics. The taxation acknowledges that wealth is possible and allowed. But it also says: a personal wealth of 10 M€ is quite enough for an individual. That amount of money is more than enough to lead a carefree life as a private individual. So the motive to become rich will – as personal wealth increases - gradually transform into a very social motive: 'what will I do for society when I have reached my maximum richness of 10 M€?’ A new frame of "social interest" is emerging. The frame is a solid core for a society and it brings social cohesion back into our society.
3. A growth tax does not impose a burden on present richness. It just puts it on a hold. Millionaires can keep their wealth during their life-time. They don't have to pay taxes. Only if their wealth grows the largest part (95%) of the growth will go to the (European) state through a tax assessment.
4. Tax on Growth of Wealth is an implicit progressive income tax. Income that is added to the private capital is taxed as growth of wealth. If a person has a large wealth, the income that is added to the wealth will also be subject to a higher tax-rate (up to a maximum of 95%). So it makes no sense for the wealthy to have high salaries, because they have to give it to the tax authorities for the most part. High salaries will not be taxed if the income is spent non-capital consumption and labor services, such as the gardener, the tax advisor or a donation to charity. The optimal wage requirement is a salary that is just enough to cover the costs of living.
5. Incorporating a territorial boundary for wealth calculation is essential. With it, we transform capital flight into a form of international development aid and an instrument of redistribution. Because the capital will not flow back to Europe, it will play a role outside Europe in building the economy abroad. In short, tax avoidance is being transformed into a policy tool to organize an effective redistribution of wealth around the world.
6. When rich people die, the heirs receive a great amount of money which is seen as a growth of personal capital. It can lead to a huge tax assessment. The bigger the inheritance, the greater the taxation. As a results the rich will properly change their will. They will distribute their richness on multiple chosen persons and organizations, because the sum of taxations of these individuals is much lesser then the taxation if only one person would inherit all. The net effect will be that Individual property will gradually be dispersed and converted into companies and corporations with many share-holders.
7. The upper limit on private property makes ownership of large assets unattractive. Who can afford buying a house worth 12 M€? It will be much more attractive to use and re-use some asset without being owner of it. Many assets will become community-owned. The focus on use and re-use instead of possession will be a very strong incentive for a circular economy that has to be erected at short notice.  
8. Europe will gradually transform into a social, relatively equal and very stable community. It will be very attractive for capital to invest in Europe. I expect capital that has been fled out of Europe, will eventually flow in again. But this capital will not come from a few rich people that hype some financial products. This new capital is dispersed over millions of Europeans and focusses on the real economy.