After approving a new wealth tax that would have harmed the Netherlands economy, undermining entrepreneurship and innovation, the government has reversed its decision due to public outrage.
According to multiple reports, the Dutch Finance Minister Eelco Heinen announced plans to change the legislation, stating that it “cannot proceed as it is” and “something simply went wrong.” This was due to widespread public complaints as the legislation sought to tax unrealized gains, an untenable strategy to generate revenue for the government.
Similar wealth taxes have failed everywhere they have been attempted. Yet, with this information in hand, Dutch policymakers pursued the confiscatory tax, ignoring the facts. While the legislation has yet to be repealed, reports of an exodus of wealthy individuals and innovators fleeing the country have given pause to cooler minds who would prefer to grow the Dutch economy instead of stifling it.
The Netherlands already has a capital gains tax of 36%, which is significantly higher than the OECD average.
Capital flight is a real concern, but myopic, unsophisticated legislators forged ahead, charting a path that could have damaged the entire Dutch economy. While there remains an intent to increase taxes, at least for now, a tax on unrealized gains does not seem to be imminent.
The Tax Foundation, a non-profit that researches tax policy, explains that:
Wealth taxes disincentivize entrepreneurship, leading to less innovation and less long-term growth. A wealth tax reduces wages, destroys jobs, and reduces the stock of capital. All income groups are worse off under a wealth tax due to decreased economic activity.”
And;
“Even a small increase in the wealth tax rate can lead to capital flight and wealthy individuals relocating to neighboring jurisdictions. For example, after a 1 percent increase in Norway’s wealth tax, many high-net-worth individuals left the country.”
What appears to be missing from the discussion is a mission to reduce government expenditures to correct any budget shortfall.
So why do politicians pursue policies that cause self-harm? It is hard to explain.