Joe Biden puts taxing the rich back in the spotlight

It's an idea championed by US President Joe Biden, leading economists and even the International Monetary Fund — make the rich pay more taxes to replenish public coffers and narrow huge wealth gaps.

Biden wants to end his predecessor Donald Trump's tax cuts for the rich and close what US officials see as loopholes benefiting the wealthiest citizens in order to fund a US$1.8 trillion middle-class families spending programme.

But even as other governments seek to revive economies pummelled by the coronavirus pandemic, such initiatives would face an uphill battle as tax rates for the rich have been coming down everywhere for the past 40 years.

The prominent French economist Thomas Piketty called for a global tax of two percent on all fortunes exceeding 10 million euros in a column in the newspaper Le Monde earlier this month.

Such a levy would raise 1.0 trillion euros ($1.2 trillion) per year, Piketty told AFP.

He said the funds could be used to narrow the gap between the world's richest and poorest nations since "the sums would be shared among all countries as a proportion of their population."

Tax the rich 'now'

Also this month, Emmanuel Saez and Gabriel Zucman, professors at the University of California, Berkeley, wrote a column in The Washington Post titled "Don't wait for billionaires to sell their stock. Tax their riches now."

The combined fortunes of the 400 richest Americans amount to the equivalent of 18 percent of US gross domestic product, twice the level seen in 2010.

But Jeff Bezos of Amazon, Elon Musk of Tesla, Larry Page of Google and Mark Zuckerberg of Facebook "contribute little to the public coffers," the two Frenchmen wrote.

"They structure their affairs so as to have little taxable income," by forgoing huge salaries and holding on to shares in their companies to avoid capital gains taxes, the economists argued.

Saez and Zucman suggest therefore that billionaires should be taxed on "unrealised capital gains" in the form of an exceptional levy that could raise as much as US$1 trillion.

Biden's plan, which he presented in his first speech to Congress on Wednesday evening, would nearly double the capital gains tax to 39.6 percent for households making over US$1 million, the top 0.3 percent of US citizens.

And it would also close what the White House says is a loophole allowing the wealthiest individuals to pass down their accumulated gains to their heirs tax-free.

'Covid contribution'

The IMF has backed the idea of raising more revenue from individuals and companies which have thrived during the pandemic.

One option would be a "Covid-19 recovery contribution" in the form of a surcharge on the personal or corporate income tax given that some "have done very well and have done very well in terms of stock market valuation," said Vitor Gaspar, head of the IMF's Fiscal Affairs Department, earlier this month.

"There is an opportunity there, and that is one of the options that is on the table," he said while also suggesting closing loopholes in capital income taxation, property taxes and inheritance taxes.

In a blog in January, World Bank senior adviser Jim Brumby said most countries are "extremely hesitant" to introduce wealth taxes.

"But if ever there were a time that weath taxes could help, it may be now," he wrote, noting that inequality was "out-of-hand", with the wealthy getting "far wealthier" while Covid-19 pushed 100 million people into poverty.

However, apart from Argentina and Bolivia which have introduced an exceptional "Covid contribution" on large fortunes — purely symbolic in the case of La Paz — few countries seem willing to impose a wealth tax, even in the form of a one-off levy.

It is certainly not on the table in Australia, Britain or Germany, even though 54 percent of Britons are in favour, according to a recent poll.

France, which eliminated a wealth tax in 2018 after almost three decades, has ruled out fresh hikes.

But not all economists believe a wealth tax is a good idea.

Nobel prize-winning economist Angus Deaton told Bloomberg News earlier in April that such a tax would be "very difficult to implement" and give the wealthy "huge incentives to avoid it — and avoid it they will".