## How to Tax Wealth

_IMF How To Notes, March 8, 2024_

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**Canonical URL:** [How to Tax Wealth](https://www.imf.org/en/publications/imf-how-to-notes/issues/2024/03/08/how-to-tax-wealth-544948)

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## Bibliographic details
- Authors: Shafik Hebous, Alexander D Klemm, Geerten Michielse
- Published: March 8, 2024
- Series: IMF How To Notes
- DOI: https://doi.org/10.5089/9798400266881.061

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### Summary
- Tackling income and wealth inequality is at the top of the policy agenda in many countries.
- The note discusses three approaches to wealth taxation:
  - (1) taxing returns with a capital income tax,
  - (2) taxing stocks with a wealth tax,
  - (3) taxing transfers of wealth through an inheritance (or estate) tax.
- The note concludes that taxing actual returns is generally less distortive and more equitable than a wealth tax.
- Reform priorities should focus on strengthening the design of capital income taxes (notably capital gains) and closing existing loopholes.
- Technological advances in tax administration—including cross-border information sharing—should be harnessed to foster tax compliance.
- The inheritance tax is important to address the buildup of dynastic wealth.

### Key findings
- Three distinct approaches to taxing wealth are evaluated: capital income taxes (returns), wealth taxes (stocks), and inheritance/estate taxes (transfers).
- Taxing actual returns (capital income tax) tends to be:
  - Less distortive than a wealth tax.
  - More equitable than a wealth tax.
- Wealth taxes (on stocks) are relatively more distortive and less equitable compared with taxes on returns.
- Inheritance taxes play a specific role in addressing dynastic accumulation of wealth.
- Closing existing loopholes in capital income taxation (notably capital gains) is a high-priority reform area.
- Improvements in tax administration and cross-border information sharing can materially improve compliance.

### Policy recommendations
- Prioritize strengthening the design of capital income taxes, with particular attention to capital gains taxation.
- Close existing loopholes that undermine capital income tax bases.
- Leverage technological advances in tax administration to improve compliance, including cross-border information sharing.
- Consider inheritance (estate) taxes as a targeted tool to address dynastic wealth buildup rather than introducing new wealth taxes that tax stocks directly.

### Keywords and subjects emphasized
- Subject: Capital income, Capital income tax, Economic sectors, Financial crises, Income, Income and capital gains taxes, Income tax systems, National accounts, Tax policy, Taxes, Wealth tax
- Keywords: capital gains, Capital income, capital income tax, estate tax, estate tax tax rate, Global, Income, Income and capital gains taxes, income inequality, Income tax systems, income taxation, one-off wealth taxes, tax administration, tax loopholes, tax planning, tax sensitivity, wealth inequality, wealth tax

*How to Tax Wealth — Shafik Hebous, Alexander D Klemm, Geerten Michielse; IMF How To Notes; March 8, 2024.*

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_Source: https://www.imf.org/en/publications/imf-how-to-notes/issues/2024/03/08/how-to-tax-wealth-544948_