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

Photographer: Anita Pouchard Serra / Bloomberg

O The fortunes of the world’s richest people skyrocketed in 2020, even when the pandemic caused economic devastation, a glaring trend that is reviving calls to tax all of this new wealth.

From Chile to the UK, left-wing parties, lawmakers, activists and academics are launching new tax proposals on millionaires and billionaires, with the aim of directly taxing their assets instead of raising taxes on sources such as income.

Argentina passed a single wealth tax last month, and the Bolivian legislature, fulfilling a campaign promise from its new socialist president, passed an annual tax on big fortunes later in the year. Lawmakers in other parts of Latin America – such as Chile and Peru – have recently pushed for similar measures.

And in the United States, although President-elect Joe Biden is not a fan of a wealth tax, progressives are advancing at the state level. They are starting in two Democratic-controlled states, California and Washington, where at least six of the ten richest people in the world reside.

“Across the world, you see growing awareness of growing wealth and income inequalities, combined with growing awareness that our tax system is unable to deal with this problem,” said the law professor at the University of Indiana, David Gamage, who helped develop fortune tax proposals.

Taxes on wealth are being discussed again, despite a complicated history. Most previous experiments with the concept, including in Germany and France, were later abandoned. Critics cited the costs and complexities of attaching value to fortunes, while arguing that the measures create incentives for wealthy residents to move or manipulate the system with tax evasion strategies.

Progressives argue that Europe’s previous efforts have had design flaws that can be repaired. Fees may be easier to administer, for example, targeting a smaller group of extremely wealthy people and relying on advances in financial transparency and technology to assess wealth. Unique taxes, like Argentina’s, are also more difficult to avoid than annual taxes.

What drives the idea’s revival is the need for revenue. The pandemic has devastated government finances worldwide, increasing spending by trillions of dollars, from India to Canada, while reducing tax collection.

The situation in the United Kingdom – which now faces its biggest fiscal deficit since the Second World War – brought the idea of ​​taxing wealth back to the table. An independent commission last month asked for a single tax to raise around 260 billion pounds ($ 354 billion) – more than a third of the UK’s tax revenues in the last financial year. Raising so much money would require taxing individual assets over £ 500,000 at 1% per year for five years, affecting 8 million people.

“There have been a lot of murmurs about reforming existing wealth taxes, but everyone is effectively treating a wealth tax as off the ‘serious’ agenda,” said London School of Economics assistant professor Andy Summers, a of the report’s authors. “This is partly because almost nobody in the UK has studied it since the 1970s.”

In Europe, a wealth tax would likely affect Germany, the continent’s nation with the largest number of billionaires in the world, most strongly. Bloomberg index of the 500 largest fortunes in the world.

German Social Democrats endorsed a wealth tax in 2019, and left-wing party Die Linke commissioned a study published in October on its plan for a single 20-year wealth tax payable, although Chancellor Angela Merkel has already rejected such measures.

In the United States, presidential candidates Elizabeth Warren and Bernie Sanders excited progressive voters – and scared more than a few billionaires – with plans to tax the wealth of the rich. Polls showed the idea was popular, but Biden’s victory means that a fortune tax is probably dead for now, even assuming Democrats take control of the Senate when the the results are finalized in the second round of Georgia.

Instead, proposals are emerging in the capitals. In Sacramento, state deputy Rob Bonta, a Democrat from Alameda in East Bay, proposed imposing a new 0.4% annual equity tax of more than $ 30 million for joint filers. The project died in 2020, but Bonta said he is considering reviving it and other measures.

“We are just asking those who are well to help those who are suffering,” he told Bloomberg Law in November.

There is no income tax in Washington State, home to 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 led to a system that is the most regressive in the US, according to the left-leaning Institute of Taxation and Economic Policy: the poorest fifth of residents pays state and local taxes that add up to almost 18% of their income, while the top 1% pays an effective rate of 3%.