Could This Happen in the US? 

Argentina is broke. It’s been sinking into debt for some time. The 2020 shutdowns from the pandemic have only made things worse.

Seizing on the latter, the government just initiated a wealth tax with the stated purpose of paying for the financial costs of the COVID crisis. It was explained as a one-time tax assessment on all citizens whose total assets exceed the equivalent of 2.3 million US dollars. The tax is between 3% and 5% of those assets.

A friend asked me, “Could that happen here?”

I don’t see why not. In fact, I think it’s all but inevitable. A wealth tax was a talking point of Bernie and AOC during the Democratic campaign, and I’m quite sure it will be talked about this year in Congress.

The first version would probably be limited to “the richest of the rich.” Perhaps only the one percent of the one percent. But that could be loosened up later.

And if those in favor of a wealth tax are smart, they will take a lead from Argentina and introduce the bill as a one-time emergency relief tax. (Who could refuse that?) Later on, of course, there would be other emergencies.

If you’ve ever been part of a poorly funded condo association, you know how this works. A one-time assessment to fix the leaky roof this year. Another one-time assessment to fix the plumbing next year. And on and on.

Actually, it’s different than a condo assessment in a very important way. A condo assessment is a tax that is paid for (and benefits) all members equally. A wealth tax – in theory – benefits all, but is paid for by a tiny fraction of the population.

A few facts about wealth taxes:

* In 1990, 12 OECD (Organization for Economic Co-operation and Development) countries employed some form of wealth tax. Today, that number has fallen to 4: Belgium, Norway, Spain, and Switzerland.

* Finland established their wealth tax in 1919, but repealed it in 2006 due to its “negative impact on enterprises” and “many possibilities to evade.”

* Ireland introduced their wealth tax in 1975 over concerns of wealth inequality. But administrative costs were too high, many exceptions were built in, and ultimately very little money was raised.

* Austria, which introduced their wealth tax in 1954, abolished it in 1994 due to “high administrative costs that accrued in the data collection process and because of the economic burden the wealth tax meant to Austrian enterprises.”

* Spain established theirs in 1977, but repealed it in 2008 amidst the global economic crisis. It was reinstated in 2011. Incomes over 700,000 euros are taxed by 0.2%, which gradually increases to 2.5% at 10.7 million euros (depending on region). Those living in the capital of Madrid are exempt.

* Belgium introduced theirs in 2018 with a 0.15% tax on securities accounts over 1,000,000 euros. Anti-abuse provisions were implemented in October of last year.

* Norway imposed theirs in 1892, and it’s still in place, with a max rate of 0.85% tax for incomes above 1.48 krona.

* In Switzerland, the tax is handled not by the federal government but by the country’s 26 individual canons, and the rate varies. The range is 0.3% to 1%. It has been responsible for at least 3% of the country’s total revenue since 2000, according to OECD data.

* In 2018, the OECD conducted a study to examine why some countries had repealed their wealth taxes. Major reasons were “concerns about their efficiency and administrative costs, in particular in comparison to the limited revenues they tend to generate.” The study noted that European wealth taxes generated only 0.2% of GDP in revenue.

* In the US, according to the Cato Institute, “it would be simpler to eliminate a high‐​end loophole in the income tax – such as the tax exemption for municipal bond interest – than to impose a new wealth tax system.”

The Rise of Cryptocurrencies:

Another Reason to Buy Gold 

Longtime readers know that I own gold. I bought it not as an investment per se, but as a hedge against some extreme financial catastrophe, such as hyperinflation or (its cousin) the collapse of the US dollar.

In such a scenario, gold – and particularly a stash of gold bullion coins – provides some advantages:

* It’s real. Like real estate, gold is tangible wealth. As such, it tends to rise when inflation rises, which is something that’s not true for many financial assets.

* It’s private. For the most part, you can buy, hold, or sell gold without anyone knowing about it.

* It’s portable. You can carry $20,000 worth of gold in your pocket, or $1 million in a carry-on bag.

* It’s universally valued. There is always a ready market for gold in every city on earth.

Now there is another reason to buy gold: the rise of Bitcoin.

I asked Tom Dyson to explain:

In the not-too-distant future, Tom says, digital wallets will become universal – perhaps as universal as cellphones. “In effect, we will all become our own banks.” And as I’ve argued in previous discussions of cryptocurrencies, it’s highly likely that the Federal Reserve and other central banks will want to administer these systems. Tom believes they will make it happen by “launching some sort of wallet app for our mobile phones.”

Why would the Federal Reserve want to do this?

Simple, Tom says. “The Fed must inflate or die. But it’s struggling to create inflation at the moment. Interest rates are at zero. And the Fed has already promised to keep them there indefinitely. It can’t force Congress to keep printing and spending.

“A digital cash system would free the Federal Reserve of existing obstacles in the way of inflating the supply. In moving towards a digital dollar, the Fed would be escaping from the downward trajectory of the existing dollar, which it knows is doomed. This doesn’t bode well for retirement funds, college savings, business endeavors, or any other financial plans we may have.”

His solution? Buy gold.

If you don’t have a stash of gold already and are wondering if you should buy now, check out the essays I’ve written about the subject here, here, and here.