That’s what I learned 2 weeks ago when I was in the Netherlands. That, and the “fact”, I’m a direct descendant of King Willem II of the Netherlands (albeit from his illegitimate child born in 1842). But let’s get back to the wealth tax. The estate my father left my mother, after his unfortunate passing some weeks ago, revealed my parents still had a mortgage. My brother replied to that, that it was better to have debt, as the alternative would be paying taxes over their assets. They call it Box 3 tax, as that’s where you capture this info on the Dutch tax forms.
I couldn’t believe it. I’m fully aware that the Dutch pay more taxes, but always thought of it as “fair” as they get so much for it in return (see Cost of Healthcare elsewhere, seen firsthand to name just one). Those taxes, I always assumed over income, not assets. Wow, talk about real double taxation (not the mythical one, brought up during elections).
It turns out, it’s not that unusual; some 16 European states used to have this wealth tax and although many have ended it, France, Greece, Iceland, 
Lichtenstein, The Netherlands and Norway still do. The Netherlands comes in at second place (after Iceland at 1.5%) with 1.2% tax over all assets, which includes savings, investments and property (both primary as well as secondary dwellings).
I always assumed the Netherlands would be my last resort, should our family get struck with a second chronic (and expensive disease). Our son’s Type 1 Diabetes puts an enormous strain on our tight retirement budget. Having a second unplanned illness (or the end to the pre-existing conditions protection, being voted on as I’m writing) might render it unmanageable. What the hell would a wealth tax do to my million plus portfolio??
Maybe not so bad, after all?
A little research shows that having a million plus portfolio would put me in a better position than most Dutch. Why, you ask? Well the Dutch don’t invest. Sure there are a few financially savvy ones that do, but overall the vast majority of the Dutch put their money in savings. With an average interest rate of 0.25% and a wealth tax of 1.5% (over the threshold of 20,000 Euros), those with lots of savings are fucked. They will lose money over time. As they stated “We’re paying to save”.
Having to pay $14,700 (1.5 % of 1,000,000 -20,000) would suck but… The Dutch DON’T have to pay taxes over money made from their assets (including investments).
They don’t have to pay taxes when they sell their house for double what they paid for and I would not have to pay taxes of over the $600,000 capital gains that make up my million plus portfolio. The wealth tax is based on a fictitious ROI of 4% on all assets put in place by the government. Over that fictitious return you expected to pay 30% taxes (hence the 1.5%). Granted those people with saving alone are fucked but those that invest tend to see much higher returns than 4%.
Those Europeans and their crazy tax rates, Socialism is what it is
Right? Hmmm, I’m disappointed to learn about this wealth tax. It truly is double taxation as the fictitious ROI of 4% is no longer realistic for most Dutch. The 4% may have worked out back when savings interest was still at 6% and the housing market was booming but that’s no longer the case. The housing market is luke warm at best and savings returns are at an all-time low. So I agree: the wealth tax is shitty. Taxes overall is a different story.
Here is a closer look at the tax brackets in the Netherlands:
For the part of income up to € 19,922: 36.55%;
For the part of income between €19,923 and €33,715: 40.40%;
For the part of income between €33,716 and € 66,421: 40.40%;
On all income over € 66,421: 52%
brackets in the USA:
for the part of income up to $9,325 10% of Taxable Income
for the part of income between $9,325 to $37,950 15%
for the part of income between $37,950 to $91,900 25%
for the part of income between $91,900 to $191,650 28%
for the part of income between $191,650 to $416,700 33%
for the part of income between $416,700 to $418,400 35%
On all income over $418,400+ 39.60%
At first sight the American Tax brackets look much more favorable but… The Dutch tax brackets include all Medicare tax, Social security (there is no state tax). Maximum deductible on all Medical costs annually is some $400 (emphasis on all, as, unlike the US, the insurers there don’t get to pick and choose what to cover and what not, they pay it ALL), The US now commonly has $5,000 plus deductibles (we’re currently at $6,700/$12,700 individual/family, on top of the $6,000 premiums I pay). Average cost of College on the Netherlands $2,000 a year with each student getting a base scholarship and supplemental loan’s available to be paid off over 35 years (only when income exceeds minimum wage and never more than 4% of your income (LOL)). Average cost of College in America per year $9,650 (public) to $33,480 (private).
To put it in terms closer to my heart: I paid nothing for my bachelor’s degree. My father, prior to his passing, probably spent at least 5 weeks a year in a hospital. My father used to, and my mother still gets 3 visits a day by a nurse to take care of all necessities. They even get reimbursed for someone to come and clean their house. How much does that all cost?
No clue, they never get a bill.
So is debt better than paying the wealth tax?
Is my brother right to state the mortgage is better than having to pay wealth tax? Maybe but not necessarily. It’s not like we have $50,000 lying around to pay it off but… I don’t know the exact rate of the current mortgage but it’s probably something like 3%. There is the mortgage interest deductible on my mother’s income that may tip the balance. Chances are high, there is no deductible given how low the mortgage is in conjunction with a eigenwoningforfait (don’t ask) which is 0.75% of the home value. Without any deductions left, paying $1,440 interest to the bank just to “stick” it to the government is really paying $720 more than you have to.
Even if the deduction broke it even, the question then becomes, would you rather “stick it” to the corporations or to the government?
sources:
https://en.wikipedia.org/wiki/Income_tax_in_the_Netherlands
https://nl.wikipedia.org/wiki/Vermogensbelasting
https://taxfoundation.org/2017-tax-brackets/
Good luck reaching your financial goals.
(Not Dutch) People probably want to know about the eigenwoningforfait now 🙂
I think paying the wealth tax is fine. People with little savings don’t have to pay and people with a lot of money probably have considered investing and should get at least the mentioned 4% averaged over the years. As they say ‘money makes money’ and it’s only fair that generated income is taxed one way or the other (assuming the government uses it for good of course, which I think generally happens in the Netherlands). The assumed 4% is based on a long-term average and is just there to make it easier. Now there is no need to figure out exactly how much interest you made on your savings accounts or profit on sold stock or received dividends.
The 4% however is not undisputed. The general consensus is that having more money actually makes it easier to generate more money. I believe that for 2017 there are brackets for the wealth tax. The lowest brackets (25k to 125k) assumes 2,9% and the highest bracket (1m and above) assumes 5,5%.
I agree with most taxes in the Netherlands, especially for what is received in return in the Netherlands, I don’t like this one at all.Given that most individuals have never in their life considered investing (as have many Americans), I don’t think the 4% is entirely fair. Savings doesn’t generate anywhere near that. So a wealth tax in combination with inflation can have some serious erosive effect on older citizens with a hard fought for nest-egg.
Do you disagree with a wealth tax or with the 4%?
I can understand disagreeing with the 4% (although it is in brackets now). However, I believe that especially the older citizens have profited a long time from much higher interest rates (upwards to 8% and even higher) while only being taxed for an assumed 4%.
I do not agree with either. First, one should be taxed on today’s income not the 8% you mention happened (now some 27 years ago). You may or may not remember but mortgage rates were upwards of 10% if not higher during that same time (they paid the price)
Secondly, it is not income until actually sold. People are paying tax on property they may never sell but instead leave to their children (at which point it is taxed AGAIN).
Taxes, should be based on income and income only. Not some hypothetical number that covers it all instead of the exact income. Furthermore, you can’t throw returns from investments, interest and appreciation of property all in the same bucket. These are entirely different assets with hugely varying risks and returns associated to them. Right now, this works out only for those that invest and for no one else.
I’m sorry to hear about your father, Maarten. I hope your mother is doing OK.
I followed most of what you wrote but the bottom line for your family is, the Netherlands is still just a last resort?
The pre-existing conditions protection is in the current bill. But it’s a Catch-22. Insurers would be allowed to charge more for them. The big question is — who knows what the bill will look like after the senate goes through it.
Thank you. My mother is doing well. Yes the Netherlands still remains a last resort but I truly hope it won’t come to that. As for current protection for pre-existing conditions is in the bill but can be waived by states. Governor Scott Walker of Wisconsin has already announced today he would consider waiving these protections. Not comforting.