‘The new tax plans are extremely disappointing’

For years, Jacobs has argued for a comprehensive overhaul of the tax system. And the coalition accord makes no mention of clearing up the complexity of capital income taxes. This is all the more stunning in light of the fact that even public workers are pleading for this to be done. Jacobs: 'As an economist, my position is straightforward: you want to tax all you make without doing any effort. And anything that involves effort is not something you want to tax significantly. The Netherlands, on the other hand, does it in reverse. What we do in this country is tax cheaply or even subsidise what you do not earn. And what you labour for is severely taxed. These taxes are more detrimental to the economy and contribute to increased inequality. Then you'll know you're doing it incorrectly.'

Avoidance and evasion

If someone pays more tax on earned income than on capital income, they know what to do: ensure that as much revenue as possible is classified as income from assets, rather than wages. 'You have a decline in economic prosperity as a result of individuals adjusting their wealth structure and investing behavior. However, you lose taxes as a result of individuals looking for loopholes in the legislation,' Jacobs explains. Additionally, various types of capital are taxed very differently. The mortgage interest deduction subsidizes home equity accumulation. Capital gains are taxed at times and not at others. Savings are taxed, but up to this point on the basis of an erroneous, and now unrealistically high, rate of return. 'What the Netherlands is doing with that fictitious return is just extraordinary,' Jacobs says. Box 2 is densely packed with assets. For a long time, it was estimated that it would entail about 200 billion euros. That proved to be a massive understatement. According to Statistics Netherlands, Box 2 households together had 368 billion euros in assets in 2019, 96% of which were owned by the top 10% of households.

There are several methods to allow capital to expand without paying (much) tax on it through box 2. For instance, an entrepreneur must pay tax if he withdraws earnings from his business, but the tax is much lower if the money stays in the PLC. As a result, PLC owners often distribute as little profit as feasible. 'These PLCs are quite enticing as a piggy bank,' Jacobs concludes. Directors and managers may readily borrow money from their own firm to maintain their financial position. The previous administration sought to reduce the maximum loan amount to EUR 500,000, however this was increased to EUR 700,000 under the coalition agreement. Jacobs refers to it as a 'unwanted additional for directors and significant stockholders.' This is not the end of it. 'If you transfer your business to your children, you also pay relatively minimal gift or inheritance tax,' Jacobs explains.

Goal

Jacobs ultimately wants all capital income and gains to be taxed, he says. At a flat charge. Jacobs finds it difficult to rationalize that, despite the increased focus on inequality, no changes are being made to the tax system. It affects a relatively tiny percentage of taxpayers but involves a substantial amount of money and property. 'I've seen that politicians' fingertips are not burned on box 2. If regular people are unconcerned and there is a powerful lobby, what is a politician to do?'