In most countries, the majority of wealth is concentrated in a fairly small number of hands. This makes a wealth tax appealing to politicians, as it should allow substantial amounts of revenue to be raised from comparatively few people, allowing the tax burden on the majority of the population to be kept down. It also appeals because it promotes meritocracy by making it harder to be born with a silver spoon in your mouth. A wealth tax reduces the disparities in wealth rather than income that are the biggest determinant of how the scales are weighted for succeeding generations. What could be better than a tax that produces lots of money for the government and strikes most voters as being extremely fair?

Alas, as critics point out, wealth taxes may cause inefficiency by discouraging wealth-creating economic activities. Moreover, the revenue collected may prove disappointing. The wealthiest people are often the most skilled at tax avoidance, not least because they can afford good tax accountants. Despite the enormous concentration of wealth in a small part of the population, on average across the OECD wealth taxes account for less than 2% of total tax revenue. A wealth tax can achieve horizontal equity and vertical equity (so that people of similar means pay the same and those with more pay more) in ways that income tax cannot. For instance, neither a poor person nor a rich person with no income would pay income tax, and only the rich person would pay the wealth tax. Wealth taxes come in two main forms. Capital transfer taxes are levied when wealth changes hands, either at death (inheritance tax) or through donation (gift tax). Annual wealth taxes are levied each year as a fraction of the taxpayer’s net worth. Some people regard capital gains tax as a wealth tax, but, strictly speaking, it is a tax on the income earned on capital, rather than a wealth tax on the capital itself.