Towards a Tax on Actual Returns

The Netherlands currently taxes capital income on the basis of a presumptive rate of return and leaves the actual returns on capital untaxed. This means that the Netherlands effectively levies a wealth tax instead of a capital-income tax. A tax on actual returns is more equitable and more efficient than the current tax. It would, moreover, be better for macro-economic stability. Thus, the Dutch government would be wise to move from a tax on presumptive returns to a tax on actual returns. Contrary to current policy, such a tax should ideally be levied on the returns on all forms of private wealth, including housing and pension wealth. Finally, it should, again ideally, tax capital gains on an accrual basis and tax above-normal returns at a higher rate than normal returns.