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Fundamental Tax Reform In The Netherlands

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  • Cnossen Sijbren
  • Bovenberg Lans

    (METEOR)

Abstract

The Dutch Parliament has passed legislation for a new income tax that abolishes the current tax on personal capital income and substitutes it by a presumptive capital income tax, which is in fact a net wealth tax. This paper contrasts this wealth tax with a conventional realization-based capital gains tax, a retrospective capital gains tax which attempts to charge interest on the deferred tax, and a capital accretion tax which taxes capital gains as they accrue. None of the approaches meets all criteria for a ''good'' income tax, i.e., equity, efficiency, and administrative feasibility. We thus conclude that the effective and neutral taxation of capital income can best be ensured through a combination of (a) a capital accretion tax to capture the returns on easy-to-value financial products, (b) a capital gains tax with interest to tax the returns on hard-to-value real estate and small businesses, and (c) a broad presumptive capital income tax, i.e., a net wealth tax, to account for the utility of holding wealth. We favor uniform and moderate proportional tax rates in the context of a dual income tax under which capital income is taxed separately from labor income.

Suggested Citation

  • Cnossen Sijbren & Bovenberg Lans, 2000. "Fundamental Tax Reform In The Netherlands," Research Memorandum 003, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  • Handle: RePEc:unm:umamet:2000003
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    References listed on IDEAS

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    1. Auerbach, Alan J, 1991. "Retrospective Capital Gains Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 167-178, March.
    2. Gerald E. Auten & Joseph J. Cordes, 1991. "Policy Watch: Cutting Capital Gains Taxes," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 181-192, Winter.
    3. Auerbach, Alan J., 1989. "The deadweight loss from `non-neutral' capital income taxation," Journal of Public Economics, Elsevier, vol. 40(1), pages 1-36, October.
    4. Alan J. Auerbach, 1988. "Capital Gains Taxation in the United States: Realizations, Revenue, and Rhetoric," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 595-638.
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