Tax Code Changes: Wealth Taxes Considered from California to Germany

Photographer: Anita Pouchard Serra / Bloomberg

The the prosperity of the richest people in the world skyrocketed in 2020, even as the pandemic caused economic devastation, a strong trend reviving calls to tax all new wealth.

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

Argentina approved a one-time wealth tax last month, and the Bolivian legislature, which kept a campaign promise from its new socialist president, adopted an annual levy on large fortunes at the end of the year. Legislators elsewhere in Latin America – such as Chile and Peru – have recently called for similar measures.

And even in the US, although President-elect Joe Biden is not a proponent of wealth taxation, progressive individuals are moving forward at the state level. They start in two democratically controlled states, California and Washington, where at least six of the ten richest people in the world live.

“Around the world, you’re seeing increasing awareness of growing wealth and income inequality, combined with increasing awareness that our tax system cannot handle the problem,” said David Gamage, a professor at Indiana University. He helped develop wealth tax proposals.

The rich get richer

Wealth of the 500 richest in the world rose in 2020

Source: Bloomberg Billionaires Index

Wealth taxes are being discussed again, despite a checkered history. Most experiments in the past with the concept, also in Germany and France, were later abandoned. Critics have argued the cost and complexity of placing a value on fortune, while the arguments encourage the measures for wealthy residents to move away or play the system with tax avoidance strategies.

Progressive claims that Europe’s previous attempts have had design errors that can be rectified. The levies can be facilitated to administer, 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-off taxes, such as those in Argentina, are also harder to avoid than annual taxes.

To revive the idea is the need for income. The pandemic devastated government finances around the world, increasing billions of dollars in spending, from India to Canada, while tax collections are being broken down.

The situation in the United Kingdom – which is now facing its biggest fiscal deficit since World War II – has brought up the idea of ​​taxing wealth again. An independent commission last month called for a one-off levy to raise about $ 354 billion ($ 354 billion) – more than a third of UK tax revenue in the most recent financial year. To raise so much money, individual wealth would have to be taxed more than £ 500,000 at 1% for five years a year, affecting 8 million people.

‘There has been a lot of grumbling about the reform of existing wealth tax, but everyone has effectively seen a wealth tax as part of the’ serious’ agenda, “said Andy Summers, associate professor at the London School of Economics, one of the authors of the report “It’s partly because hardly anyone in the UK has studied it since the 1970s.”

In Europe, a wealth tax is likely to hit Germany the hardest, the country on the continent with the most billionaires in Bloomberg’s index of the 500 largest fortunes in the world.

German Social Democrats endorsed a wealth tax in 2019, and the left-wing Die Linke party commissioned a study published in October on its plan for a one-off levy on wealth payable over 20 years, although Chancellor Angela Merkel had earlier refuted such measures.

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

Instead, proposals appear in state capitals. In Sacramento, State Assemblyman Rob Bonta, a Democrat from Alameda in the East Bay, proposed introducing 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 was considering reviving it and other measures.

“We only ask those who do good to help those who are suffering,” he told Bloomberg Law in November.

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