Wealth tax the way to go in this crisis
Anent last week’s column, which suggested that the Philippines impose a wealth tax on its wealthiest Filipino families, proceeds of which would be used to finance the war against COVID-19 and its victims, it turns out that Argentina has already passed such a tax. This information thanks to a Reader, who sent me a link that led to other links, etc.
Argentina passed in early December 2020 its “Solidarity and Extraordinary Contribution of Great Fortunes” law, which is more popularly known as the “millionaire’s tax.” It is a one-time charge of 2-5.25 percent levied on Argentina’s 12,000 richest individuals, which by my calculation is 0.027 percent (a little over one-fourth of 1 percent of its population), who have declared assets of more than $2.5 million. Argentina expects to raise about $3.5 billion from this tax.
How does it work? Those affected will pay a progressive rate of up to 3.5 percent on wealth held in Argentina, and up to 5.25 percent on that held outside the country. And of the money raised, 20 percent will go to medical supplies, 20 percent to relief for small and medium-sized businesses, 20 percent to scholarships for students, 15 percent to social developments, and the remaining 25 percent to natural gas ventures.
So, Reader, our legislature will not have to start from scratch on our wealth tax, it can use the Argentine law as a template, hopefully improving it. One can already see where that law could be improved: What possible rationale can there be that makes natural gas ventures, which gets 25 percent of the revenues from the tax, a legitimate weapon in the anti-COVID-19 war? Legislators will be legislators, whatever the country. Additionally, perhaps it should not be just a one-time tax, but should last as long as the anti-COVID-19 war is being fought. This might provide tremendous incentive for the rich and powerful to make sure the COVID-19 virus is dealt with. But that’s just my gut feel. No evidence to support it.
Don’t think that there was no opposition in Argentina to that tax. Argentina’s government is considered center-left, so the center-right forces are claiming that the tax is “confiscatory,” that it may not be a one-time tax only (see above), and of course that old and reliable standby: That it will discourage foreign investment.
Argentina is the first country to impose a wealth tax as a solution to financing the costs of COVID-19, followed closely by Bolivia. The United Kingdom, according to reports, is seriously considering it. According to a four-month-old Guardian report, the Wealth Tax Commission, a group of tax experts and economists brought together by the London School of Economics and Warwick University, declared that “targeting the richest in society would be the fairest and most efficient way to raise taxes in response to the pandemic.”
This commission proposes a one-time 1 percent tax on wealth above a certain threshold, say 500,000, 1 million, or 1.5 million pounds, with estimates about how much could be raised (260 billion pounds with the second option, over five years). And it points to “one-off” taxes being used by Japan, Germany, France, and Ireland after a major crisis—World War II for the first three, and the 2008 financial crisis for Ireland.
The Wealth Tax Commission is not the only one calling for a tax on wealth. The Independent Commission for the Reform of International Corporate Taxation (ICRICT), whose membership includes such economic heavyweights as Joseph Stiglitz (Nobel laureate) and Thomas Piketty, stated in a report last May 2020 that “If the wealthy are not to bear a proportionate share of the economic burden of the pandemic, local income taxes and even international corporate tax coordination will not be sufficient. Therefore, effective taxation of wealth, and in particular offshore wealth, needs to be put in place.”
The ICRICT, by the way, also unequivocally states that “There is no evidence that the recent trend of lowering corporate tax rates has in fact stimulated productive investment and growth.” It proceeds to expound on this at some considerable length. In fact, it recommends a “higher corporate tax rate to large corporations in oligopolised sectors with excess rates of return.”
Economic analysis and historical experience tell us that the wealth tax is the way to go in this crisis. And there’s even a clincher: That it will help reduce the deepening inequality in countries. Now it is up to our politicians. Sob.
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