Changes in the tax code: wealth taxes considered from California to Germany

Photographer: Anita Pouchard Serra / Bloomberg

the fortunes of the richest people in the world have increased in 2020 even though the pandemic has caused economic devastation, a strong trend that revives calls to tax all that new wealth.

From Chile to the United Kingdom, left-wing parties, parliamentarians, activists and academics are floating new tax proposals on millionaires and billionaires, with the aim of taxing their assets directly, rather than starting rates on sources such as income.

Argentine approved a single wealth tax last month, and Bolivia’s legislature, fulfilling a campaign promise of its new socialist president, adopted an annual wealth tax at the end of the year. Lawmakers from other parts of Latin America – such as Chile and Peru – have recently lobbied for similar measures.

And in the US, even though President-elect Joe Biden is not a fan of wealth tax, progressives are advancing at the state level. They start in two Democratic-controlled states, California and Washington, where at least six of the world’s richest people live.

“All over the world, you are seeing a growing awareness of growing inequalities in wealth and income, combined with a growing awareness that our tax system is not up to the task of solving this problem,” said Indiana University law professor David Gamage, who contributed to the development of wealth tax proposals.

The rich get richer

The adventures of the richest 500 in the world have increased in 2020

Source: Bloomberg Billionaires Index

Wealth taxes are being discussed again, despite a plausible history. Most previous experiments with this concept, including in Germany and France, were later abandoned. Critics cited the costs and complexities of capitalizing on wealth, arguing that the measures create incentives for wealthy residents to move away or play the system with tax avoidance strategies.

Progressives claim that Europe’s previous efforts have had design flaws that can be repaired. Taxes can be easily administered, for example, by targeting a smaller group of extremely wealthy people and relying on advances in financial transparency and technology to assess wealth. Single taxes, such as those in Argentina, are also harder to avoid than annual ones.

The motivation for the rebirth of the idea is the need for income. The pandemic has devastated government finances around the world, increasing billions of dollars in spending from India to Canada, while reducing tax collections.

The situation in Britain – which is now facing the largest fiscal deficit of World War II – has brought back the idea of ​​taxing the wealth in question. An independent commission last month called for a single tax to raise about £ 260 billion (more than $ 354 billion) – more than a third of UK tax revenue in the last financial year. Raising so much money would require taxing individual wealth over £ 500,000 at 1% a year for five years, affecting 8 million people.

“There have been quite a few rumors about reforming existing wealth taxes, but they have all effectively treated a wealth tax as being out of the ‘serious’ order,” said London School of Economics Assistant Professor of Law Andy Summers, one of the report’s authors. “Partly because someone in the UK has only studied it since the 1970s.”

In Europe, a wealth tax would be the hardest hit in Germany, the continent with the largest number of billionaires Bloomberg index of the world’s 500 largest fortunes.

The German Social Democrats approved a wealth tax in 2019, and the left-wing party Die Linke commissioned a study published in October on its 20-year single levy plan, although Chancellor Angela Merkel had previously rejected it. measures.

In the US, presidential candidates Elizabeth Warren and Bernie Sanders have excited progressive voters – and scare more than a few billionaires – with wealth tax plans. Polls have shown the idea was popular, but Biden’s gain means a wealth tax is probably dead for the time being, even assuming Democrats take control of the Senate when the results are finalized in the eliminations in Georgia.

Instead, the proposals appear in state capitals. In Sacramento, State Deputy Rob Bonta, an Alameda Democrat from East Bay, proposed imposing a new 0.4% annual tax on the net value of more than $ 30 million for joint depositors. The bill died in 2020, but Bonta said he plans to revive it and other measures.

“We ask only those who do well to help those who suffer,” said Bloomberg Law in November.

There is no income tax in Washington State, which hosts some of the richest people in the world: Amazon.com founder Jeff Bezos; his ex-wife, MacKenzie Scott; and Microsoft founder Bill Gates and former CEO Steve Ballmer. This has led to a system that is the most regressive in the US, according to the Institute of Taxation and Economic Policy on the left: The poorest fifth of residents pay state and local taxes that bring in almost 18% of their income, while the top 1% pays an effective rate of 3%.