Tax is a concept we are all familiar with, as it is both a civic duty and a part of our everyday economic lives. However, we rarely consider why any particular tax is collected in a specific manner. Yet, understanding how tax is collected plays as significant a role as the amount collected in comprehending its economic effects. For this purpose, we can categorize taxes into three fundamental groups based on their focus, namely: taxes collected on income (e.g., income tax, corporate tax), taxes collected on expenditures (e.g., VAT, excise taxes), and direct taxes on wealth. To understand the economic impacts of these different types of taxes, let us first consider the basic relationship between income, expenditure, and wealth\u2014and envision a world without informality. In this context, taxes on expenditure and wealth can be seen as secondary taxes, i.e., taxes levied again on already taxed income. Here, it is worth highlighting the dual role of wealth. Although wealth is created by the accumulation of taxed income, it also has the capacity to generate income when used as capital, thus functioning as a production input. Therefore, when we speak of a wealth tax, we refer not to taxes on the income generated by wealth but to taxes levied on ownership. Accordingly, this type of tax is paid based on the value of the assets held by an individual or family rather than on accrued income (Gruber, 2015). Wealth tax can thus arise from the accumulation of personal savings or the transfer of existing wealth.<\/p>\n
Globally, wealth tax practices are uncommon and generally collected in two ways. The first is the \u201cNet Wealth Tax,\u201d where the tax base is calculated by deducting liabilities from the total wealth owned by an individual. The other method, called a \u201cPartial Wealth Tax,\u201d involves taxing only certain types of assets. In T\u00fcrkiye, apart from the Wealth Tax briefly implemented in the 1940s, we can say that wealth tax practices align more closely with the latter method. Examples of wealth taxes in T\u00fcrkiye include the Motor Vehicle Tax (MTV), Property Tax, and the Inheritance and Transfer Tax, which can be considered partial wealth tax practices. Additionally, the valuable housing tax introduced in 2019 is also a type of wealth tax.<\/p>\n
Although the implementation varies by country, the share of wealth taxes in total tax revenue generally remains low. As shown in the following chart, in 2022, the share of wealth-related tax revenues in total tax revenues was below 10% in most OECD countries, except for a few. In T\u00fcrkiye, this rate stands at around 3.5%. While the one-time collection of a second MTV payment in 2023 may have temporarily changed this figure, wealth tax revenues typically do not constitute a significant portion.<\/p>\n
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Source: OECD, https:\/\/www.oecd.org\/en\/data\/indicators\/tax-on-property.html<\/p>\n
Why Focus on Wealth Tax When Income Tax Exists?<\/strong><\/p>\n According to OECD data, the share of tax revenues from income, profits, and capital gains in total tax revenue was 33.7% for T\u00fcrkiye in 2022. In contrast, this rate exceeds 90% for the United States and stands around 50% for developed European economies like Germany and France. So, why is the share of income tax in T\u00fcrkiye so low? According to an OECD report, T\u00fcrkiye was one of five OECD countries in 2022\u2014alongside Chile, Colombia, Hungary, and Lithuania\u2014where consumption taxes accounted for more than 40% of total tax revenue (OECD, Consumption Tax Trends, 2022). What are the economic outcomes of this tax structure? To answer this question, we must first understand the \u201ceconomic\u201d role of the state. From a public economics perspective, the economic role of the state can be summarized as growing the pie and dividing it as \u201cequitably as possible.\u201d However, there is often an inverse relationship between the size of the pie and the equality of the slices. In other words, a more equitable resource distribution usually results in efficiency losses. For instance, while taxing wealth could make resource distribution more equitable, it may lead to capital outflow as wealth holders move their assets abroad to avoid taxes, reducing investments and production and ultimately resulting in an efficiency loss for the national economy.<\/p>\n Another dimension of the trade-off between efficiency and equity is closely related to how tax is collected. Although income, spending, and saving behaviors are interrelated, spending and saving decisions vary greatly among different income groups. For this reason, income taxation is often preferred by policymakers as it is a fundamental indicator of economic welfare, and the equity and efficiency effects of income tax are easier to understand. In developing economies like T\u00fcrkiye, the primary reason for the low share of income tax is the difficulty of collecting income tax in economies with high levels of informality. Another issue in these economies is low savings rates. These challenges in implementing income tax increase the importance of taxes collected on consumption and spending in such economies.<\/p>\n Should Wealth Tax Be Collected?<\/strong><\/p>\n Recently, the global deterioration in income and wealth distribution and the substantial portion of total income and wealth owned by the wealthiest 1% have brought wealth tax practices back onto the agenda for developed economies. Two distinct approaches can be considered here. The first emphasizes the socio-political effects of income and wealth inequality and argues that wealth inequality should be corrected through a well-designed redistributive wealth tax. This view contends that individuals at the top of the wealth distribution, particularly, can evade income taxes. In the case of large corporations, one way for shareholders to avoid income tax is to reinvest corporate profits into the company, thus bypassing existing income taxes. Consequently, a wealth tax could be seen as a means of taxing this type of income.<\/p>\n What Would Happen If a Wealth Tax Were Implemented?<\/strong><\/p>\n The fundamental difference between income and wealth lies in the relative ease of avoiding wealth tax compared to income tax. Particularly with mobile wealth, wealth tax practices may result in the outflow of domestic capital, which would reduce investments and production. Similarly, in economies with prevalent informality, wealth tax practices could encourage informal production and increase informal employment, negatively affecting post-tax income distribution. A potential wealth tax would also predominantly impact wealth holders who contribute to formal production. As a result, a wealth tax aimed at improving resource distribution could ultimately reduce formal production and worsen income distribution.<\/p>\n Can T\u00fcrkiye Implement a Wealth Tax?<\/strong><\/p>\n The economic conditions T\u00fcrkiye has been facing for some time and emerging budget deficits have once again brought to the fore how the tax burden is shared among different segments of society. Given that income and consumption taxes account for around 75% of total taxes, it is not hard to see why the idea of a wealth tax appeals to the large segments of the population with nearly zero wealth. However, from the perspective of modern public economics, it is difficult to predict the indirect effects a wealth tax might have on low-income groups. Moreover, mainstream economic theory suggests that in the medium and long term, such taxes may yield outcomes contrary to the goals of wealth tax implementation.<\/p>\n When Mehmet \u015eim\u015fek resumed his position in 2023, his statement, \u201cT\u00fcrkiye has no option but to return to a rational basis,\u201d indicated that T\u00fcrkiye\u2019s fiscal structure would align with policies consistent with mainstream economics (Euronews, 2024). In line with this, the Strategy and Policy Presidency\u2019s MTP published in September did not mention the term wealth even once, instead emphasizing price stability and the promotion of registered employment as primary objectives in resource distribution. This approach aligns with the perspectives we summarized regarding the potential negative impacts of wealth tax. When we also consider the low savings and investment rates in T\u00fcrkiye, a wealth tax appears unlikely to be a consideration for current economic policy in the short and medium term, as it may jeopardize growth and inflation targets.<\/p>\n Taking all these factors into account, we can anticipate that fiscal policy under Mehmet \u015eim\u015fek\u2019s leadership will not pursue a universal wealth tax in the near and medium term. Exceptions to this view may include partial wealth tax practices, such as the valuable housing tax, or adjustments to the rates of existing wealth taxes. However, the impact of such policies on resource and wealth distribution in the country would likely remain limited.<\/p>\n References<\/strong><\/p>\n [1] \u201c2025-2027 Orta Vadeli Program\u201d,\u00a0T.C. Cumhurba\u015fkanl\u0131\u011f\u0131 Strateji ve B\u00fct\u00e7e Ba\u015fkanl\u0131\u011f\u0131 (2024),\u00a0<\/em>https:\/\/www.sbb.gov.tr\/wp-content\/uploads\/2024\/09\/Orta-Vadeli-Program_2025-2027.pdf<\/a><\/p>\n [2] \u201cTaxing the Superrich\u201d,\u00a0Emmanuel Saez ve Gabriel Zuchman (2020)<\/em>, Boston Review,\u00a0https:\/\/www.bostonreview.net\/forum\/gabriel-zucman-taxing-superrich\/<\/a><\/p>\n [3] \u201cMehmet \u015eim\u015fek\u2019ten ilk a\u00e7\u0131klama: Rasyonel bir zemine d\u00f6nme d\u0131\u015f\u0131nda se\u00e7enek kalmam\u0131\u015ft\u0131r.\u201d,\u00a0Euronews (2023)<\/em>,\u00a0https:\/\/tr.euronews.com\/2023\/06\/04\/mehmet-simsekten-ilk-aciklama-rasyonel-bir-zemine-donme-disinda-secenek-kalmamistir<\/a><\/p>\n [4] \u201cConsumption Tax Trends 2022\u201d,\u00a0OECD (2022),\u00a0<\/em>https:\/\/www.oecd-ilibrary.org\/taxation\/consumption-tax-trends-2022_6525a942-en<\/a><\/p>\n