Tax Law Changes: Capital taxes are considered from California to Germany

Photographer: Anita Pouchard Serra / Bloomberg

The the fortunes of the world’s richest people soared in 2020 even as the pandemic wreaked economic havoc, a stark trend that is reviving calls to tax all that new wealth.

From Chile to the UK, left-wing parties, lawmakers, activists and academics are floating new proposals for levies on millionaires and billionaires, with the aim of directly taxing their assets rather than increasing rates on sources such as income.

Argentina approved a one-off wealth tax last month, and Bolivia’s legislature, fulfilling a campaign promise made by its new socialist president, approved an annual levy on large fortunes at the end of the year. Lawmakers elsewhere in Latin America – such as Chile and Peru – have recently pushed for similar measures.

And in the US, while President-elect Joe Biden is not a fan of a wealth tax, progressives are moving forward at the state level. They start in two Democrat-controlled states, California and Washington, which are home to at least six of the 10 richest people in the world.

“Across the world, you see a growing awareness of growing wealth and income inequalities, combined with a growing realization that our tax system cannot handle this problem,” said Professor David Gamage, a law professor at Indiana University who helped develop of proposals for wealth tax.

The rich are getting richer

The fortunes of the 500 richest in the world increased in 2020

Source: Bloomberg Billionaires Index

Despite a turbulent history, capital taxes are again being discussed. Most previous experiments with the concept, including in Germany and France, were later discontinued. Critics cited the cost and complexity of valuing fortunes, arguing that the measures create incentives for wealthy residents to leave or mock the system with tax avoidance strategies.

Progressives argue that Europe’s previous efforts showed design flaws that can be fixed. The levies can be managed more easily, for example by targeting a smaller group of extremely wealthy people and by relying on advances in financial transparency and technology to assess wealth. One-time taxes, like the one in Argentina, are also more difficult to avoid than annual ones.

The revival of the idea is the need for income. The pandemic has devastated public finances around the world, increasing spending by trillions of dollars, from India to Canada, while reducing tax collection.

The situation in the UK – now facing the largest budget deficit since World War II – has brought the idea of ​​taxing wealth back into discussion. An independent committee last month called for a one-off levy to raise about 260 billion pounds ($ 354 billion) – more than a third of the UK’s tax revenue in the past fiscal year. To raise that much money, individual assets of over £ 500,000 would have to be taxed at 1% per year for five years, which would affect 8 million people.

“There has been quite a bit of murmuring about existing wealth tax reform, but everyone just treated a wealth tax as being off the ‘serious’ agenda,” said Andy Summers, assistant professor of law at the London School of Economics, one of the authors. of the report. “In part, that’s because hardly anyone in the UK has studied it since the 1970s.”

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

German Social Democrats approved a wealth tax in 2019, and left-wing party Die Linke published a study in October on its plan for a one-off tax on assets to be paid in 20 years, although Chancellor Angela Merkel has taken such measures earlier. refuted.

In the US, presidential candidates Elizabeth Warren and Bernie Sanders have excited progressive voters – and more than a few billionaires scared – with plans to tax the wealth of the rich. Polls showed the idea was popular, but Biden’s victory means a wealth tax is dead for now, even if Democrats take control of the Senate when the The results become definitive in Georgia outflows.

Instead, proposals appear in capitals. In Sacramento, Counselor Rob Bonta, a Democrat from Alameda in the East Bay, proposed imposing a new 0.4% annual tax on the net worth of more than $ 30 million for joint filers. The bill died in 2020, but Bonta said he is considering reviving it and taking other measures.

“We ask only those who are doing 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 has led to a system that, according to the left-wing Institute on Taxation and Economic Policy, is most regressive in the US: the poorest fifth of residents pay state and local taxes that together make up almost 18% of their income, while 1% pay an effective rate of 3%.