New Policy in Focus debates wealth tax
The International Policy Centre for Inclusive Growth (IPC-IG), in partnership with the Institute for Applied Economic Research (Ipea), has just launched a new issue of the Policy in Focus magazine: “Wealth tax: Perspectives in a post-pandemic world”, featuring Ipea researcher Pedro Humberto Bruno de Carvalho Junior as specialist guest editor.
Personal wealth is more unequally distributed than income. It tends to increase and self-reinforce due the lack of capital taxation, including inheritances. In addition, the top richest diversify investments and save more. The nine articles of the magazine provide perspectives on whether wealth taxes can be an effective instrument for distributive and fiscal policies to promote a more inclusive recovery in a post-pandemic world.
The articles can be subdivided into three sections: (i) wealth tax proposals and policies in developed countries; (ii) wealth tax debates in emerging economies; and (iii) a perspective of wealth taxes against the background of the COVID-19 health crisis.
The first article, “Progressive wealth taxation”, by Emmanuel Saez and Gabriel Zucman, from the University of California, discusses a wealth taxation proposal focused on the 'super rich’ in the United States. “The greatest injustice of the U.S. tax system today is its regressivity at the very top: billionaires in the top four hundred pay less (relative to their true economic incomes) than the middle class”, argue the authors.
Jane Holtzblatt, from the Urban-Brookings Tax Policy Center, debates effective instruments for better taxation of capital in the U.S. in her article “Taxing wealth in the United States: Issues and challenges”. According to her, wealth taxes “have the potential to raise a considerable amount of revenue and would be owed by relatively few people, who have the resources to pay the tax”. In addition, she writes about other currently discussed tax policies to target the richest, such as the taxation of unrealised capital gains.
On “Wealth taxes: Past experiences and future role?”, Sarah Perret,* from the Organisation for Economic Co-operation and Development (OECD), debates the reasons why wealth taxes failed in the past and how they could be made effective today. “A major pitfall of previous European wealth taxes was that many assets benefitted from exemptions and reliefs, which increased complexity and reduced revenues and progressivity”, she explains.
In “A European net wealth tax”, Alexander Krenek and Margit Schratzenstaller from the Austrian Institute of Economic Research, highlight the importance of policies that curb tax avoidance. The authors estimate a specific wealth distribution to include the top richest in regular household survey databases to calculate the wealth tax potential in various EU countries.
Still in the European context, Marius Brülhart et al. study the tax base elasticity and other central challenges of the well-established Swiss wealth tax system in their article “Wealth taxation: The Swiss experience”. According to the authors “the main current user of wealth taxes, and therefore in some respects the most propitious laboratory for studying their effects, is Switzerland”.
In “A net wealth tax for Brazil: Main lessons and international perspectives”, Pedro Humberto Carvalho Junior (Ipea) and Marc Morgan (World Inequality Lab and Paris School of Economics) set the stage for the wealth tax debate in emerging economies by analysing the case of Brazil. The authors propose the implementation of a ‘tax on large fortunes’ with an effective taxation of 3 per cent for the 0.1 per cent richest taxpayers. “A national system of taxation on the possession and transfer of personal wealth could re-direct about 1 per cent of GDP, which is significant”, they say.
For Sakti Golder, from the International Budget Partnership (IBP), “the underutilisation of overall wealth taxes in mobilising resources is evident in India, as in other developing countries”. Golder provides a perspective on India’s enormous inequality and defends a more intensive use of different taxes on capital to fund social expenses in the article “Relevance of wealth taxes in tackling the COVID-19 crisis and inequality in India”.
In “A wealth tax for South Africa: A proposal to help finance COVID-19 pandemic measures”, Aroop Chatterjee, Leo Czajka and Amory Gethin, from the World Inequality Lab (Paris School of Economics) and the Southern Centre for Inequality Studies (University of the Witwatersrand), used combined microdata from household surveys, income tax, and macroeconomic balance sheets to find an extremely high concentration of wealth in South Africa and estimate the revenue potential of a wealth taxes. They stated that “the success of a wealth tax should be evaluated on the basis of whether it raises sufficient revenue for a specific policy to deal with crises or reconstruction”.
Khaled Abdelkader and Ruud de Mooij,* from the International Monetary Fund (IMF), discuss progressive tax reform to fund social spending and drive inclusive economic recovery in the post-COVID-19 context in the article “Tax policy for an inclusive recovery”. According to the authors, even before the pandemic, income inequality in many countries was high and rising, leading to social unrest, undermining trust in government and generating adverse consequences for economic recovery. With that in mind, they argue that “inequality can also be reduced from the top downwards, using progressive taxes (whereby the average burden rises with income or wealth)”.
The IPC-IG and Ipea are developing a special podcast series featuring interviews with the authors of this special issue to deepen the debates on each topic. Three episodes will be launched between January and February 2022.
About the IPC-IG
The IPC-IG is a global forum for international dialogue on innovative development policies created by a partnership between the United Nation Development Programme (UNDP) and the Government of Brazil, through the Ministry of Economy and the Institute for Applied Economic Research (Ipea), with the objective of promoting the exchange of experiences, knowledge and technical and institutional capacities for the design, formulation and evaluation of development policies that contribute to inclusive growth, poverty and inequality reduction and human development.
*The authors’ opinions expressed in their articles are their own and do not necessarily reflect the positions of their respective institutions.