Fundamental tax reform: taxes on capital income
The main focus of the changes in the tax system should be the taxes on capital income. This is what Laura van Geest, director of CPB Netherlands Bureau for Economic Policy Analysis (CPB), advises to Menno Snel, Secretary of State for Finance. Bas Jacobs, Sijbren Cnossen Professor of Public Economics at Erasmus School of Economics, pleas for rigorous intervention with regards to box 2 and 3 of the Dutch income tax.
Both the support for taxes and the tax morale are undermined as a result of the inequality in income and capital. This inequality is getting worse because taxes on labour income are increasing, whereas taxes on capital have stayed the same for a number of years. According to Professor Bas Jacobs, box 2 and 3 of the Dutch income tax should be combined and all capital income should be taxed at a rate of 30 to 35 percent. This capital income should include pension income and income from a main residence. According to Professor Jacobs, the Dutch economy is a 'manic depressive boom-bust economy', which means that both the upturns and downturns of the economy are extreme. 'We go from high peaks into deep slumps and this is partially due to tax-driven savings', says Professor Jacobs.
Higher taxes on capital income are necessary to compensate the losers of globalisation and technological development. Moreover, the time is now right to increase taxes on capital income, because of the public debates about tax avoidance and profit tax rates.