Wealth tax seduces again after losing strength – 10/15/2023 – Market

Thomas Piketty’s book “Capital in the 21st Century” drew global attention a decade ago for its call for a global wealth tax. However, politically, the idea now appears to face difficulties.

A U.S. plan to tax rich people’s investments is unlikely to pass Congress. In the UK, the Labor Party this year abandoned its commitment to taxes, and France canceled its wealth tax in 2018.

His opponents include French President Emmanuel Macron, who replaced the wealth tax with a property tax, with the aim of promoting international investment in the country. Critics also looked to the example of Norway, where a tax on the country’s billionaires sent dozens of them fleeing to Switzerland.

Despite the expansion of the State in other areas, proposals to tax wealth have often come into conflict with the political process. And where taxes were adopted, they were sometimes easy to avoid and often included several exclusions that reduced the revenue collected: according to the OECD, in 2020 they typically represented less than 1% of total tax revenue.

Edward Troup, former head of the UK’s tax authority, HMRC, believes that having to pander to “vested interests” means that wealth taxes are simply not worth political capital. “[Eles] they make you discount pensions, property, private companies – to the point where it’s not worth it,” he said.

At the same time, as Western governments face the reality that an aging population will reduce their workforce and limit tax revenues from wages, economists and activists argue that the idea – which tends to win broad public support – is likely to resurface. .

“In the current environment, where existing taxes are already high in many economies, we could see new taxes on land, or on wealth in general, enter the agenda,” says Keith Wade, economist at asset manager Schroders.

Spain last year adopted a broader “rich wealth solidarity tax” for those with net assets of more than 3 million euros (R$15.8 million), in response to the cost of living crisis. Countries in Latin America have also introduced these taxes, including Venezuela in 2019 and Argentina and Bolivia in 2020.

Colombia became the latest country in the region to follow suit, in early 2023, charging a fee of 0.5% to 1.5% to individuals whose assets exceed US$750,000 (R$3.69 million). .

Piketty told the Financial Times: “There is no doubt that the wealth tax will return in France and elsewhere, quite simply because there is no way for the rest of the population to accept paying for the climate, for education, for health and so on, if the richest do not pay their fair share”.

Arun Advani, a British academic and supporter of the taxes, acknowledges that it has been difficult to pass them. “People understand that a wealth tax would be a good thing,” he said. “But the losers are well connected to those who listen and have power: politicians and journalists.”

But, he added, “Today it’s harder for people to say these taxes can’t generate significant revenue.” The value of assets in the United Kingdom has risen from two to three times annual national income to around seven times since the British government’s last campaign for a broad tax on all forms of wealth under Prime Minister Harold Wilson in 1974. he said. This attempt did not materialize.

Advani argues that, to overcome the difficulties associated with adopting a broad wealth tax, the “easiest way” would be to improve the existing state apparatus to better tax increases in wealth – that is, income not linked to work, or from investments . He advocates equalizing the tax on capital gains, which in the United Kingdom is charged at a rate between 10% and 28%, with the tax on salary income, which has a maximum rate of 45%.

“The tax system is unequal among the rich who earn the same amount,” Advani said. “There must be a lot of bankers, who make their money in earnings rather than investments, angry because this hurts them.”

This fact has not gone unnoticed among high earners. “It’s an absolute crime,” said Gary Stevenson, a former Citibank trader who paid the top rate of income tax on all his bonuses and now campaigns for wealth taxes with the Patriot Millionaires group.

In the UK, wealth divides have risen sharply over the past decade and a half. Incomes have stagnated while asset prices, especially housing, have continued to rise, making wealth less accessible to young people.

Polls tend to show that the public supports wealth taxes – in the United Kingdom, a poll carried out this year by YouGov showed that 75% of Britons are in favor. But Dan Neidle, a tax lawyer and founder of Tax Policy Associates, said: “There is a dangerous political trap with wealth taxes – they do well in isolation, but in the heat of an election campaign they are not as successful.”

Instead, Troup advocates focusing on one asset, such as residential real estate, through a land tax.

Despite Norway’s example, Advani argues that wealth taxes don’t necessarily scare the rich into fleeing. A previous reform of the UK’s non-domestic regime – under which people resident in Britain are exempt from full taxation on their overseas income – did not cause significant numbers of residents to leave the country.

Governments have also greatly improved their ability to track offshore assets with the advent of more data-sharing protocols with other tax authorities, he said.

Critics of plans like Advani’s have argued that raising capital gains taxes would reduce the incentive to start businesses in the first place. But Advani argues that most business owners, when selling their companies, say they were completely unaware of the tax rates they would face.

“What you should be doing to help entrepreneurs is not a lower fee at the end of the process so they can do well,” Advani said. “You must provide support to people along the way.”

(Emma Agyemang, in Copenhagen, Jim Pickard, in London, and Leila Abboud, in Paris, collaborated)

Translated by Luiz Roberto M. Gonçalves