February 26, 2018

Tax Wealth and not Capital Gains

In Switzerland, the capital gains of private citizens are not taxed. Instead, there is a moderate wealth tax. I always suspected that this is the preferrable system in comparison to that of other countries that do the opposite. The main reason is a systemic one: with a capital gains tax, those who use their capital most productively, most notably successful entrepreneurs, pay the highest taxes. With a wealth tax, much more tax revenue comes from lazy rich who sit on idle capital without knowing what to do with. The result is a situation in which capital is better allocated and the economy grows faster. Maybe that is one of Switzerland’s success secrets?

This view has now been confirmed by Guvenen et al. in an extensive model. John Cochrane also quickly discusses it on his blog.

“What I cannot create, I do not understand.”
Richard Feynman