Algemene Rekenkamer, ‘Letter to the House about Review of the Tax System’, 19 March, 2015. http://www.courtofaudit.nl/english/Publications/Audits/Introductions/2015/03/Letter_to_the_House_about_Review_of_the_tax_system
Atkinson, A. and Stiglitz, J., ‘The Design of Tax Structure: Direct versus Indirect Taxation’, Journal of Public Economics, 6, 55–75, 1976.
Bettendorf, L. and Cnossen, S., “The Long Arm of the European VAT, Exemplified by the Dutch Experience”, CESIFO Working Paper No. 4730, Mar. 2014.
Bovenberg, L. and Cnossen, S., “Fundamental Tax Reform in The Netherlands”, International Tax and Public Finance, 7, 471–484, 2001.
De Boer, H., Dekker, P. and Jongen, E., “MICSIM - A Behavioural Microsimulation Model for the Analysis of Tax-Benefit Reform in the Netherlands.”, CPB Background Document, Nov. 2014.
De Mooij, R., “Reinventing the Dutch Tax-benefit System - Exploring the Frontier of the Equity-efficiency Trade-off”, CPB discussion paper, 2007.
De Mooij, R., “Tax Biases to Debt Finance: Assessing the Problem, Finding Solutions”, Fiscal Studies, 489–512, 2012.
Jacobs, B., De Mooij, R. and Van Ewijk, C., “Welfare Effects of Fiscal Subsidies on Home Ownership in the Netherlands”, De Economist, 155: 323–336, 2007.
Sørensen, P., “Can Capital Income Taxes Survive? And Should They?”, CESifo Economic Studies, Vol. 53, 172–228, 2007.
Sørensen, P., “Dual Income Taxes: a Nordic Tax System”, published as chapter 5 in Iris Claus, Norman Gemmell, Michelle Harding and David White (eds.), Tax Reform in Open Economies, Edward Elgar, 2010.
Prepared by Jean-Marc Natal (EUR). This paper greatly benefitted from helpful comments by Ruud de Mooij and Arjan Lejour and discussions with Bas Jacobs.
Approximate back-of-the-envelope calculations suggest that taxing pensions as ordinary savings under Box 3 (€14 billion; 1.2 percent wealth tax on about €1.2 trillion pension wealth), removing the tax subsidy on owner-occupied housing (about €6 billion in lost fiscal revenues due to the combination of low imputed return on housing and high deductibility of mortgage interests, see paragraph 11), and unifying VAT at the standard rate (€8 billion) would increase (ex-ante) revenues by roughly 4 percent of GDP.
A rate of return that compensates investors for time preference and expected inflation.
The DIT usually includes a mechanism to avoid the double-taxation of equity.
Note that in practice international treaties signed by Nordic countries forbid levying withholding taxes on interest and dividends paid out to non-residents.
Because it increases the effective tax rate on capital income, this solution seems to defeat one of the stated objectives of the DIT which is to avoid damaging capital flight (see point iii above). However, the relevant tax margin for investment purposes is the CIT. International capital mobility implies that a higher tax on personal capital income will essentially result in lower domestic savings and current account balances, but should not tremendously affect investment if the CIT remains low and constant (Sørensen, 2007).
Note, however, that this solution also introduces a close correspondence between the level of capital and labor income taxes which can be seen as a constraint by the tax authorities.
The effective tax rate on a deposit account with 2 percent return is 60 percent, while the effective tax rate on an equity portfolio with 8 percent return is 15 percent. As equity and other high yielding assets, including real estate, are typically held by wealthier individuals, the presumptive taxation system is regressive. A new law on capital income taxation scheduled for 2017 attempts to mitigate the regressive aspect of the current arrangement by setting the presumptive return as a function of total wealth, divided into three brackets (W<€100,000; €100,000<W<1,000,000; W>1,000,000). While an improvement with respect of the current arrangement, the new system still falls short of taxing realized capital returns.
The tax base for pension deductions is capped at €100,000 in the Netherlands.
A simple back of the envelope calculation would suggest €14 billion (€1,200 x 1.2 percent) to which we could add the current lost revenues from taxing retirement benefits at a reduced rate.
Proposed by the U.S. Treasury in 1992.
Note that introducing a withholding tax on interest in a DIT system is equivalent to the CBIT. CIT = tau*(R–dK–iB) + tau*(iB) = tau*(R–dK), for (R) the net cash flow post labor costs, (d) the depreciation rate, (K) the firm’s capital stock and (iB) the interest paid on net debt.
A priori, the CBIT increases CIT and decreases PIT, while ACE does the opposite. As business capital is more internationally mobile than personal capital, the general preference for ACE is easily understandable. However, one could argue that enlarging the tax base would permit lower tax rates so that the net effect of the CBIT on CIT may not be positive after all. At the end of the day, it all boils down to how other taxes are adjusted and able to pick up the slack when either CBIT or ACE is introduced.
First proposed by the Capital taxes group of the Institute for fiscal studies in 1991.
The ACE also provides a natural hedge against the investment distortion caused by deviations between true economic depreciation and depreciation for tax purposes; if firms write down their assets at an accelerated pace, the current tax saving will be eventually offset by a fall in future rate of return allowances.
The measures are expected to create about 35,000 new jobs, in particular among dual earners households with small children. The €5 billion tax cut package announced on September 15 will be allocated as follows:
i) Rise in the personal income tax threshold of the fourth tax bracket (highest earners), from the current €57,585 to €65,000, for which the tax rate will remain at 52 percent (about €1 billion);
ii) Reduction in the total personal income tax rate in the second and third bracket between €19,923 and €66,421 per year (about €2.5 billion);
iii) Increase in earned income tax credit and childcare subsidies for second earners (about €500 million) and corporate tax incentives for hiring of low-paid workers (about €500 million);
iv) Increase in personal tax-free allowance for incomes up to €50,000 per year, alongside a reduction in the number of general tax exemptions (about €500 million).
The participation tax is defined as the sum of increased taxes and lost benefits when labor income is increased by a given amount.
Of course these calculations tend to oversimplify as they assume constant behaviors throughout. A more interesting exercise would look at the growth and unemployment effects of a budget neutral increase in VAT.
If the unique VAT rate was extended to all currently exempted goods and services, the tax revenues would amount to a maximum of €33 billion or 70 percent of total personal income revenues ex-social contributions. Note that this would have to be compatible with the EC directive which legislates what services are to be exempted and therefore set a higher bound.
For a more extensive discussion of the status of self-employed in the Netherlands, please refer to the special issues paper, “Dual Labor Market in the Netherlands—Environment and Policy Implications” by Michelle Hassine.