Wednesday, September 13, 2023

Capital Gains Taxes destroy wealth in these EU countries

If you tax something, you get less of it.  In EU countries without capital gains taxes (Switzerland, Belgium, Luxembourg, Turkey, Slovenia, Czech Republic and Slovakia), an investment that costs $100, but returns $150 after five years has an annualized Internal Rate of Return (IRR) of 8.45%.  In other words, this investment is not profitable unless your cost of capital is less than 8.45%.

For the countries with the highest capital gains rates, Denmark (42%), Norway (35.2%), and France (34%), this investment won't get made unless capital costs are less than 5.2%, 5.7%,  and 5.9%, respectively.  

BOTTOM LINE:  the higher the capital gains rate, the smaller the investment, and the poorer is the country, compared to what it would be without a capital gains tax.

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