As one of a very few countries, Norway has a wealth tax. Since 2014, it does not have an estate tax, however. Apart from the usual economic and fairness arguments, the case for abolition was strengthened by the modesty of the its revenue—a mere NOK 2 billion per year. Obviously, it was not designed well. The wealth tax has been reduced, but not abolished; and the government seems to have given up its original plan to abolish it.
Politicians and economists on the left like the wealth tax for its distributional effects. It also helps collecting taxes from wealthy people whose current income is zero or negative, for example when their financial investments go badly.
However, although I believe in fighting inequality, I am no fan of the wealth tax. It is naturally a tax on saving and investment, over and above the taxation of capital income. Furthermore, as business proprietors have to pay this tax even when they lose money, it can mean real hardship in terms of liquidity. It furthermore encourages leverage because debt can be deducted from taxable wealth. Moreover, entrepreneurs are hit disproportionately if they successfully sell all or part of their enterprises. The 1% tax (the current Norwegian rate) may not seem much at first. But it is not a one-time tax; rather, it will have to be paid over and over every subsequent year regardless of the actual return the the money may earn. Last, but not least, as Norway is virtually alone maintaining this tax, it serves as an incentive for successful people to emigrate and move their business elsewhere.
The headline suggests that I prefer an estate tax instead. Why? First of all because this is a tax on wealth that you get simply by being related to some recently dead. It is wealth you have not worked for. On fairness grounds alone, that makes it a good tax. It's also not bad in terms of incentives. True, the tax may encourage people to spend their money in their lifetimes rather than leaving it to their heirs; but for the heirs, the tax rather serves as an incentive to work rather than hanging around waiting for your parents to die.
But my argument goes deeper. I believe recent research has taught us that income inequality, while perhaps undesirable from a strictly moral point of view, may be justified if the cause is that some people work harder and make more sacrifices than others. What is really bad is when inequality is coupled with social immobility. Then you get a class society, where people are stuck in the social class where they are born. That is not only socially bad; it typically also dampens economic growth, partially by making the privileged classes lazy and partly by excluding the talents hidden among the middle and lower classes. I believe an estate tax can dampen such a development.
This is my main argument for the estate tax. The typical counterargument is that it hurts family businesses at times of generational change. True, it may make it challenging to keep the business within the family. But how important is it to keep it in the family? In terms of social fairness, I think not very. And in terms of economics, it is far from obvious that the best manager is the child or grandchild of the original founder. If it is, I have no doubt that outside investors would be interested in bying out the heirs so they can pay their taxes. A profitable business ought always to be able to find investors.
If the wealth tax is reintroduced, as I hope, it obviously needs to be designed better than the one we had. The bureaucrats in the Ministry of Finance ought to be able to accomplish that.