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 * Finland established their wealth tax in 1919, but repealed it in 2006 due to its “negative impact on enterprises” and “many possibilities to evade.”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 * Spain established theirs in 1977, but repealed it in 2008 amidst the global economic crisis.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.”