Countries around world debate over wealth tax to alleviate disparities amid K-shaped recovery
As countries around the world seek to overcome the COVID-19 crisis through deficit spending financed by the issuance of government bonds, debate is intensifying about how to raise tax revenue. As the pandemic drags on, there are increasing signs of a K-shaped recovery that enriches the wealthy and impoverishes the poor, inspiring proposals to introduce a “wealth tax” that would collect more taxes from the rich.
The idea has picked up speed in South America. In December 2020, the senate of Argentina passed a one-time wealth tax on high-income earners with assets worth more than 200 million pesos (US$2.3 million). The tax seeks to collect 3.5% of their domestic assets and 5.25% of their overseas assets.
The overseas rate was set 50% higher than the domestic rate, a response to wealthy individuals moving money overseas to combat the rising inflation caused by the pandemic. The levy applies to 12,000 people, about 1% of all taxpayers.
Through the levy, the Argentine government has collected 300 billion pesos (4 US$3.45 billion) of funding. It plans to use 20% of the funds on buying medical equipment for COVID-19, 20% on supporting small and medium-sized businesses and 15% on social development.
At the end of 2020, Bolivia finalized a wealth tax on people worth at least 30 million Bolivianos (US$4.4 million). The Bolivian authorities believe there are 152 people who will have to pay this tax, which will be assessed yearly, rather than only once, as in Argentina.
European countries such as the UK, Germany and France are also discussing the adoption of a wealth tax. As the UK enters its third lockdown amid the proliferation of a variant of the coronavirus, the country faces its biggest fiscal crunch since World War II.
That has prompted the Wealth Tax Commission, which is staffed by British economists, to call for adopting a one-time wealth tax with the aim of collecting 260 billion pounds (US$355.68 billion). That would be more than one-third of the government’s yearly revenue.
The British commission proposes levying a 1% annual tax for five years on individuals with a net worth of at least 500,000 pounds (about 740 million won). Around 8 million people would likely be subject to the tax. There are also calls to reinstate a wealth tax in France and Germany, which had such a tax in the past.
The idea has even been raised in the US. A wealth tax is being debated by state legislatures in California and Washington, states that are run by the Democratic Party and home to 60% of the country’s billionaires.
One variable is President-Elect Joe Biden’s opposition to adopting a wealth tax. But since wealth inequality is worsening in the US, the discussion is likely to continue.
In the past, wealth taxes have been scrapped by Sweden, Germany, and countries in South America. But the uniqueness and severity of the current situation have brought the idea back to the table.
Numerous countries have loosened the purse strings to an unprecedented degree in an attempt to goose economies contracting in the pandemic. Governments across the Americas, Europe and Asia are recording the worst deficits in history, but an astronomical expansion of liquidity has served to further enrich the wealthy. This is called a K-shaped recovery, where different sectors of the economy recover at vastly different rates.
Since governments have few means of boosting tax revenue, more people are buying the argument that those who profited from the crisis should shoulder more of the tax burden.
The US Institute for Policy Studies has concluded that the wealth of the US’ 651 billionaires has grown by more than US$1 trillion over the past nine months. According to another study, the total wealth of China’s 415 billionaires increased by 41% in four months, to US$1.68 trillion.
“There had been little discussion about reforming the tax code for the wealthy, but the introduction of a wealth tax is now being dealt with as a serious agenda item,” said Andy Summers, an assistant professor at the London School of Economics.
By Choi Hyun-june, staff reporter
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