{"id":34447,"date":"2025-07-17T10:14:30","date_gmt":"2025-07-17T10:14:30","guid":{"rendered":"https:\/\/financialrush.com\/?p=34447"},"modified":"2025-07-17T10:14:30","modified_gmt":"2025-07-17T10:14:30","slug":"trade-and-wealth-tax-myth-busting","status":"publish","type":"post","link":"https:\/\/financialrush.com\/?p=34447","title":{"rendered":"Trade and wealth tax myth-busting"},"content":{"rendered":"<p> \n<\/p>\n<div>\n<p>Unlock the Editor\u2019s Digest for free<\/p>\n<p class=\"article__content-sign-up-topic-description o3-type-body-base\"><span>Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/span><\/p>\n<p><iframe class=\"article__content-sign-up-iframe close\" scrolling=\"no\" id=\"signUpIframe\" data-prev-url=\"\/register\/in-article-sign-up?ft-content-uuid=7ec2c02f-d304-419d-ad12-f1fcfcce86a0\"><\/iframe><\/div>\n<div id=\"article-body\">\n<div class=\"n-content-layout\" data-layout-name=\"card\" data-layout-width=\"full-width\">\n<div class=\"n-content-layout__container\">\n<div class=\"n-content-layout__slot\">\n<p>This article is an on-site version of Free Lunch newsletter. Premium subscribers can sign up <a href=\"https:\/\/ep.ft.com\/newsletters\/subscribe?newsletterIds=56388465e4b0c3d64132e189\" data-trackable=\"link\">here<\/a> to get the newsletter delivered every Thursday and Sunday. Standard subscribers can upgrade to Premium <a href=\"https:\/\/www.ft.com\/manage\/subscription\/change\/713f1e28-0bc5-8261-f1e6-eebab6f7600e?segmentId=5d1c2689-3304-f81f-a9e5-b3e96e93c176\" data-trackable=\"link\">here<\/a>, or <a href=\"https:\/\/www.ft.com\/newsletters\" data-trackable=\"link\">explore<\/a> all FT newsletters<\/p>\n<\/div>\n<\/div>\n<\/div>\n<p>Facts are useful. They allow you to make decisions based on how they will affect the world around you. Myths are useful too. They allow people to make sense of things that would otherwise seem chaotic. This means they can be used to persuade people to support something that may not have the effects they expect. That is what happens when myth is confused for fact. So, today, I engage in some myth-busting, in two areas: EU-US trade relations for starters, and the UK debate on wealth taxation for the main course. Send your favourite economic policy myths and facts to <a href=\"https:\/\/www.ft.com\/content\/mailto:freelunch@ft.com\" data-trackable=\"link\">freelunch@ft.com<\/a>.<\/p>\n<p>Donald Trump has sent an angry letter to European Commission president Ursula von der Leyen. In it, the US president repeats his rant about how unfair and unbalanced the trading relationship is and vows to slam huge additional tariffs on European imports.<\/p>\n<p>So here is a quiz question for readers: try to answer without checking. How big is the Eurozone\u2019s bilateral current account surplus with the US? \u20ac100bn? \u20ac200bn? Maybe \u20ac500bn?!<\/p>\n<p>It\u2019s almost a trick question. In 2024, the Eurozone\u2019s current account surplus with the US was\u2009.\u2009.\u2009.\u2009\u20ac3bn, as the European Central Bank showed in a <a href=\"https:\/\/www.ecb.europa.eu\/press\/stats\/bop\/2025\/html\/ecb.bq250404~3a3bb7d212.en.html\" data-trackable=\"link\">recent data release<\/a>. Surprised? So was I, because the large external surplus of the monetary union (and the EU as a whole, without the UK) has been a basic feature of the global economy since the aftermath of the global financial crisis. And complaining about the European surplus vis-\u00e0-vis the US is a mainstay of Trump\u2019s grievance politics.<\/p>\n<div class=\"n-content-layout\" data-component=\"flourish\" data-component-id=\"24259820\" data-component-type=\"flourish-in-article\">\n<figure class=\"n-content-picture n-content-layout__container\"><a href=\"#24259820\"><picture data-asset-type=\"flourish\" data-flourish-id=\"24259820\" data-flourish-type=\"visualisation\">\n<div id=\"24259820\" class=\"cp-message o-message o-message--inform o-message--notice\" data-o-component=\"o-message\">\n<div class=\"o-message__container\">\n<div class=\"o-message__content\">\n<p class=\"o-message__content-main\">Some content could not load. Check your internet connection or browser settings.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<p><\/picture><\/a><\/figure>\n<\/div>\n<p>The story is, admittedly, complicated. If you look only at goods, the Eurozone has a large bilateral surplus: \u20ac253bn in <a href=\"https:\/\/www.ecb.europa.eu\/press\/stats\/bop\/2025\/html\/ecb.bq250703~a6a15279e7.en.html\" data-trackable=\"link\">the first quarter of this year<\/a>. And that, of course, is the only thing Trump cares about. But services are traded too, and there the Eurozone has had a growing deficit since 2020 (it reached \u20ac172bn in the first quarter). A large part of that has to do with intellectual property payments to US tech companies, presumably for services ranging from videoconferencing in the pandemic to \u201cartificial intelligence\u201d large language models today. In addition, the current account surplus is reduced (through its \u201cprimary income\u201d component) by the large profits these companies are repatriating to the US.<\/p>\n<p>And it\u2019s even more complicated than that. Both the exports and the imports seem to involve goods produced and services ultimately sold outside of the Eurozone by US companies\u2019 subsidiaries in Ireland, which suggests some of the trade (im)balance data is an artefact of US corporate tax manoeuvres. The European Central Bank has an <a href=\"https:\/\/www.ecb.europa.eu\/press\/economic-bulletin\/focus\/2025\/html\/ecb.ebbox202504_02~b993bf44eb.en.html\" data-trackable=\"link\">entire research note on this<\/a> for those wanting the details. Suffice it to say here that it\u2019s not just President Trump who may be carrying an overly simple image of the economy in his head.<\/p>\n<p>Now on to the UK, where chancellor Rachel Reeves has tried to make a splash about financial regulation, though my bet is that the debate will keep focusing on taxes and spending until her Autumn Budget (and beyond). In my FT column this week, I argued that both the economy and Labour\u2019s political fortunes would benefit if the government <a href=\"https:\/\/www.ft.com\/content\/5a0fd689-cdc6-4650-9a23-51b00110fc7b\" data-trackable=\"link\">pursued comprehensive tax reform<\/a> instead of tinkering at the edges. I noted that it was\u2009.\u2009.\u2009.\u2009<\/p>\n<blockquote class=\"n-content-blockquote o3-editorial-typography-blockquote\">\n<p>\u2009.\u2009.\u2009.\u2009in this context of comprehensive [tax reform that] Labour could properly consider a wealth tax, preferably on the Swiss or Norwegian models of an annual levy on net assets that replaces inheritance tax or capital gains tax.<\/p>\n<\/blockquote>\n<p>As the debate on wealth taxes has reappeared \u2014 many Labour MPs want a version of them, and the government is no longer clearly ruling them out \u2014 so have the many misgivings that are usually rolled out. Some of these, however, qualify as myths. Below, I try to put four of them to bed, at least for the case of a wealth tax proper; that is, a recurrent annual levy on a taxpayer\u2019s total assets net of debts.<\/p>\n<p><em><strong>\u201cIt is too hard to do<\/strong><\/em><strong>.<\/strong><em><strong>\u201d<\/strong><\/em> The idea that implementing a net wealth tax is particularly challenging in terms of logistics and governance keeps coming up. Of course, it could be that the UK tax administration is particularly useless (the FT reports that MPs have accused the government of not knowing how much tax billionaires pay). It could also be that the complainers have not bothered to look at how net wealth taxes are implemented in the countries that have them. Switzerland and Norway have two of the world\u2019s richest, most successful and best-governed economies. They both levy net wealth taxes and have been doing so for a very long time. While such a tax may sometimes be politically contested, there is no sign at all that levying it is difficult in purely practical terms. In Norway, for example, property values are automatically assessed based on formulas, financial companies report bank and investment holdings to the tax authorities, and unlisted company stakes are taxed based on their reported accounting values.<\/p>\n<p><em><strong>\u201cIt will not raise enough money to be worth it<\/strong><\/em><strong>.<\/strong><em><strong>\u201d<\/strong><\/em> But in these other countries, <a href=\"https:\/\/data-explorer.oecd.org\/vis?tm=wealth%20tax&amp;pg=0&amp;hc%5BTransaction%5D=&amp;snb=156&amp;vw=tb&amp;df%5Bds%5D=dsDisseminateFinalDMZ&amp;df%5Bid%5D=DSD_NASEC10%40DF_TABLE10&amp;df%5Bag%5D=OECD.SDD.NAD&amp;df%5Bvs%5D=1.1&amp;dq=A.CHE%2BNOR.S13...ODC%2BD59A.....V..&amp;lom=LASTNPERIODS&amp;lo=10&amp;to%5BTIME_PERIOD%5D=false\" data-trackable=\"link\">it does<\/a>. Recurrent wealth taxes take in 1.5 per cent of GDP in Switzerland, and 5 to 6 per cent of total tax revenue. In Norway, the rates are about 0.6 and 1.5 per cent, respectively. If a wealth tax in the UK took in similar percentages, it could raise between \u00a320bn and \u00a345bn.<\/p>\n<p><em><strong>\u201cIt will scare the rich away.\u201d <\/strong><\/em>It is true that Norway experienced an exodus of some very rich people after the tax increase was announced, but it is <a href=\"https:\/\/www.ft.com\/content\/74b99987-74b7-48cd-8edd-9fa1b6da3fcf\" data-trackable=\"link\">hard to pin it on the wealth tax<\/a> since other capital taxes were increased at the same time. In particular, the government pre-announced (bad idea) that it would close a loophole that allowed people to escape capital gains tax on gains made in Norway by moving abroad for a short period. In any case, where did the multi-millionaires flee to? Switzerland! Switzerland admittedly allows foreign taxpayers special treatment when it comes to its wealth tax, so if the UK thinks it really cannot thrive without a lot of footloose foreign billionaires, it could copy the Swiss set-up. To the extent that the worry is about native entrepreneurs fleeing the home country \u2014 Norway\u2019s issue \u2014 why not copy the US and tie a wealth tax to citizenship and residence rights, as well as actual residence?<\/p>\n<p><em><strong>\u201cIt will kill incentives to invest.\u201d<\/strong> <\/em>Even if they don\u2019t flee, taxing \u201cvalue creators\u201d, so we are told, would make them save and invest less. That raises the question of what they would do with their money instead. Consume it (and add demand in the economy)? In any case, the <a href=\"https:\/\/www.wealthandpolicy.com\/wp\/106.html\" data-trackable=\"link\">little evidence there is<\/a> does not show this to be a problem. Wealth taxation largely seems to affect reported wealth, not actual wealth \u2014 ie attempts to avoid or evade the tax. It also <a href=\"https:\/\/www.ssb.no\/en\/inntekt-og-forbruk\/skatt-for-personer\/artikler\/a-wealth-tax-at-work\" data-trackable=\"link\">does not seem<\/a> to hurt the liquidity of entrepreneurial companies much. Anecdotally, one successful entrepreneur once told me that when he was building his start-up, he couldn\u2019t care less about how he was going to be taxed if he ever became a multi-millionaire, but that a lower income tax rate would have been of much more help back then than a lower wealth tax.<\/p>\n<p>The bigger economic point here is that incentives to accumulate and deploy capital productively depend on the entirety of capital taxation (and indeed on non-capital taxation). A wealth tax allows a state to reduce other taxes instead, such as the corporate tax on profits. Norway has abolished the inheritance tax; Switzerland mostly doesn\u2019t tax capital gains or inheritances. If anything, a net wealth tax rewards better (or luckier) entrepreneurs because you pay the same no matter how big the return on your pot of capital, whereas corporate or income taxes make you pay more the more successfully you invest. In this sense, a net wealth tax is a <a href=\"https:\/\/www.ft.com\/content\/8b1aa05c-dab0-11e9-8f9b-77216ebe1f17\" data-trackable=\"link\">handmaiden of capitalism<\/a>.<\/p>\n<p>Share your thoughts on trade balances, wealth taxes and other economic facts or myths via <a href=\"https:\/\/www.ft.com\/content\/mailto:freelunch@ft.com\" data-trackable=\"link\">freelunch@ft.com<\/a>.<\/p>\n<h2 id=\"other-readables\" class=\"n-content-heading-2 o3-editorial-typography-chapter\">Other readables<\/h2>\n<p>\u25cf The European Commission has published its <a href=\"https:\/\/www.politico.eu\/article\/european-commission-propose-eu-budget-1-816-trillion-ursula-von-der-leyen\/\" data-trackable=\"link\">first proposal for the EU\u2019s next seven-year budget<\/a>. Let the gladiatorial games begin!<\/p>\n<p>\u25cf <a href=\"https:\/\/www.ft.com\/content\/82e32f7c-47e2-4e96-bb53-a58377e18aa9\" data-trackable=\"link\">Has Donald Trump won<\/a> the first round of his trade war?<\/p>\n<p>\u25cf New York\u2019s business elite seems willing to consider the possibility that Zohran Mamdani <a href=\"https:\/\/www.ft.com\/content\/f172fc63-422f-4016-a0b7-ac155eb50f81\" data-trackable=\"link\">is not the devil<\/a>.<\/p>\n<div class=\"n-content-layout\" data-layout-name=\"card\" data-layout-width=\"full-width\">\n<div class=\"n-content-layout__container\">\n<h3 id=\"recommended-newsletters-for-you\" class=\"n-content-heading-3 o3-editorial-typography-subheading\">Recommended newsletters for you<\/h3>\n<div class=\"n-content-layout__slot\">\n<p><strong>Chris Giles on Central Banks<\/strong> \u2014 Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up <a href=\"https:\/\/ep.ft.com\/newsletters\/subscribe?newsletterIds=6501cc9ec6e3c91c18b0b9e6\" data-trackable=\"link\">here<\/a><\/p>\n<p><strong>Trade Secrets<\/strong> \u2014 A must-read on the changing face of international trade and globalisation. Sign up <a href=\"https:\/\/ep.ft.com\/newsletters\/subscribe?newsletterIds=593150d2dea7360004bce4db\" data-trackable=\"link\">here<\/a><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n\n<br \/><a href=\"https:\/\/www.ft.com\/content\/7ec2c02f-d304-419d-ad12-f1fcfcce86a0\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this&hellip;\n","protected":false},"author":6,"featured_media":34448,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[],"class_list":["post-34447","post","type-post","status-publish","format-standard","has-post-thumbnail","category-us","cs-entry","cs-video-wrap"],"_links":{"self":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/34447","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=34447"}],"version-history":[{"count":0,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/34447\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/media\/34448"}],"wp:attachment":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=34447"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=34447"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=34447"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}