Changes in the tax code: California wealth taxes in Germany are considered

Photographer: Anita Pouchard Serra / Bloomberg

He the fortunes of the world’s richest people skyrocketed in 2020, even when the pandemic caused economic devastation, a strong trend that revives calls to tax all this new wealth.

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

Argentina last month it passed a single tax on wealth and Bolivia’s legislature, fulfilling a campaign promise from its new socialist president, passed an annual rate on large fortunes at the end of the year. Recently, legislators in other Latin American countries – such as Chile and Peru – have pushed for similar measures.

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

“There is a growing awareness around the world about the growing inequalities of wealth and income, combined with a growing awareness that our tax system is not up to the task of tackling this problem,” said law professor Indiana University’s David Gamage, who has helped develop wealth tax proposals.

Wealth taxes are being re-discussed despite a checkered history. Most previous experiments with this concept, including in Germany and France, were later abandoned. Critics have cited the costs and complexities of valuing fortunes, arguing that the measures create incentives for wealthy residents to move away from or confront the system with tax evasion strategies.

Progressives argue that Europe’s previous efforts had design flaws that could be repaired. They can be made easier to manage taxes, for example, by targeting a smaller group of extremely wealthy people and relying on advances in financial transparency and technology to assess wealth. One-off taxes, such as those in Argentina, are also more difficult to avoid than annual taxes.

Driving the reactivation of the idea is the need for revenue. The pandemic has devastated government finances around the world and increased spending by billions of dollars, from India to Canada, while reducing tax collections.

The situation in the United Kingdom – which is now facing its largest fiscal deficit since World War II – has led to the idea of ​​taxing wealth in the debate. Last month, an independent commission called for a single tax to raise about £ 260 billion ($ 354 billion), more than a third of UK tax revenue in the last financial year. Raising so much money would require taxing individual wealth above £ 500,000 at 1% a year for five years, affecting eight million people.

“There have been quite a few whispers about the reform of existing wealth taxes, but everyone has effectively treated a wealth tax as off the‘ serious ’agenda,” said the assistant law professor at the London School of Economics , Andy Summers, one of the authors of the report. “In part, this is because almost no one in the UK has studied it since the 1970s.”

In Europe, a wealth tax would probably affect Germany more, the continent with the largest number of billionaires Bloomberg index of the 500 largest fortunes in the world.

The German Social Democrats passed a wealth tax in 2019 and the left-wing party Die Linke commissioned a study published in October on its plan for a single tax on wealth to be paid for 20 years, although Chancellor Angela Merkel has previously 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 there is likely to be a wealth tax for now, even assuming Democrats take control of the Senate when the results end in the Georgia qualifiers.

Instead, proposals appear in the state capitals. In Sacramento, state assembly Rob Bonta, an Alameda Democrat in East Bay, proposed imposing a new 0.4% annual tax on net worth in excess of $ 30 million for joint taxpayers. The bill died in 2020, but Bonta said he is considering resuscitating it and other measures.

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

There are no income taxes in Washington state, where some of the richest people in the world live: 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 United States, according to the Institute of Taxation and Economic Policy: the poorest fifth of residents pays state and local taxes that add up to nearly 18% of their income 1% pays an effective rate of 3%.