Capital levy

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The Conscientious Burglar.
Paisley humanitarian. "If I could only be quite sure that I shouldn't be discouraging him from saving."

"Mr. Asquith has pronounced himself cautiously in favour of a capital levy, on the condition, amongst others, that it must not be allowed to discourage the habit of saving." Cartoon from Punch magazine (February 11, 1920), illustrating part of the dilemma for governments pondering the use of a capital levy. Capital Levy - Asquith - Punch cartoon - Project Gutenberg etext 16394.png
The Conscientious Burglar.
Paisley humanitarian. "If I could only be quite sure that I shouldn't be discouraging him from saving."

"Mr. Asquith has pronounced himself cautiously in favour of a capital levy, on the condition, amongst others, that it must not be allowed to discourage the habit of saving." Cartoon from Punch magazine (February 11, 1920), illustrating part of the dilemma for governments pondering the use of a capital levy.

A capital levy is a tax on capital rather than income, collected once, rather than repeatedly (regular collection would make it a wealth tax). For example, a capital levy of 30% will see an individual or business with a net worth of $100,000 pay a one-off sum of $30,000, regardless of income. Capital levies are considered difficult for a government to implement.[ citation needed ]

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Some economists argue that capital levies are a disincentive to savings and investment, and cause capital flight, but others argue that in theory this need not be the case.[ citation needed ] The latter view was popular in the World Wars; in the 2010s, it has also gained some acceptance as more heavily indebted nations struggle to raise revenues.

Examples of capital levies

Ancient democracies

In ancient Athens during its democracy, there was a form of capital levy known as a liturgy (Ancient Greek : λειτουργία, romanized: leitourgia, lit. '"work for the people"; from litos ergos, "public service"'). [1] The liturgy might be anything from financing a public play to supplying and manning a trireme for the navy. An Athenian could volunteer for such a levy, but if no-one volunteered, a wealthy person meeting the eligibility requirements would be ordered to supply it. They could escape by nominating someone wealthier to take over the duty; if the nominated person disputed this, the nominator could take the liturgy, or offer to exchange property with their nominee (antidosis). If the nominee refused, the matter went to court, and the liturgy was assigned whoever the court case determined to be wealthier. Athenians often concealed their wealth to escape taxation, and sycophants who discovered concealed wealth might use it as blackmail material. Antidosis helped the state identify the wealthiest people, and kept the rich suspicious of one another. [2] [3] Athens also had a wealth tax called eisphora (see symmoria), and for this purpose the city required each rich person give an estimate of his fortune (τίμημα). These self-assessments were not very accurate. [4] :p.159 The liturgy has not been much studied by economists. [2]

20th century

During both World Wars, capital levies were introduced, with the generally-stated aim of distributing the sacrifices required by the war more evenly[ clarification needed ]. This had a significant effect on both income and wealth distributions, lasting decades into the post-war period. Such policies were commonly referred to as the "conscription of wealth". [5]

a fundamental objection to the government's policy of conscription is that it conscripts human life only, and that it does not attempt to conscript wealth...

Liberal party election platform, autumn 1917, Canada

The Economist, a British publication, opposed capital levies, but supported "direct taxation heavy enough to amount to rationing of citizens' incomes"; similarly, the American economist Oliver Mitchell Wentworth Sprague, in the Economic Journal, argued that "conscription of men should logically and equitably be accompanied by something in the nature of conscription of current income above that which is absolutely necessary". [5]

21st century

The Italian government of Giuliano Amato imposed a 0.6 percent levy on all bank deposits on 11 July 1992. [6]

In 1999, Donald Trump proposed for the United States a one-off 14.25% levy on the net worth of individuals and trusts worth $10 million or more. Trump claimed that this would generate $5.7 trillion in new taxes, which could be used to eliminate the national debt. [7]

The Cypriot government levied 47.5 percent of Bank of Cyprus deposits over one hundred thousand Euros in July 2013. [8] [9] In October 2013, the International Monetary Fund released a report [10] stating, "The sharp deterioration of the public finances in many countries has revived interest in a 'capital levy' – a one-off tax on private wealth – as an exceptional measure to restore debt sustainability. The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior." [11] [10] The next year the Bundesbank proposed that Eurozone countries should attempt a one-off levy of bank deposits to avoid bankruptcy. [12] [13]

A February 2014 report by Reuters showed the idea had gained traction in the European Commission, which will ask its insurance watchdog later that year for advice on a possible draft law "to mobilize more personal pension savings for long-term financing". [14]

In the United Kingdom, a report published by the Wealth Tax Commission in December 2020 recommended the introduction of a one-off wealth tax in case the government chooses to raise taxes in order to address the challenges for public finances posed by the COVID-19 recession. [15] [16] Without taking a stance on specific exemption thresholds or tax rates, the estimations presented in the report imply that a well-designed 5% one-off tax on individual net wealth above £500,000 could raise as much as £260 billion. [17] [18] The recommendations set out in the report were subsequently discussed in the Treasury Select Committee. [19] The chair of the committee, Mel Stride, suggested that the proposal of a one-off wealth tax is “probably nearer the end of the spectrum of the possible-stroke-question mark-desirable than an annual wealth tax.” [20]

See also

Related Research Articles

A tax is a mandatory financial charge or some other type of levy imposed on a taxpayer by a governmental organization to collectively fund government spending, public expenditures, or as a way to regulate and reduce negative externalities. Tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax relief. The first known taxation took place in Ancient Egypt around 3000–2800 BC. Taxes consist of direct or indirect taxes and may be paid in money or as its labor equivalent.

A land value tax (LVT) is a levy on the value of land without regard to buildings, personal property and other improvements upon it. It is also known as a location value tax, a point valuation tax, a site valuation tax, split rate tax, or a site-value rating.

<span class="mw-page-title-main">Public finance</span> Study of the role of government within the economy

Public finance is the study of the role of the government in the economy. It is the branch of economics that assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones. The purview of public finance is considered to be threefold, consisting of governmental effects on:

  1. The efficient allocation of available resources;
  2. The distribution of income among citizens; and
  3. The stability of the economy.
<span class="mw-page-title-main">Deutsche Bundesbank</span> Central bank of Germany

The Deutsche Bundesbank is the German member of the Eurosystem and has been the monetary authority for Germany from 1957 to 1998, issuing the Deutsche Mark (DM). It succeeded the Bank deutscher Länder, which had introduced the DM on 20 June 1948.

A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate.

<span class="mw-page-title-main">Progressive tax</span> Form of tax

A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term progressive refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate. The term can be applied to individual taxes or to a tax system as a whole. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a regressive tax, such as a sales tax, where the poor pay a larger proportion of their income compared to the rich.

<span class="mw-page-title-main">Offshore bank</span> Bank located outside the country of residence of the depositor

An offshore bank is a bank that is operated and regulated under international banking license, which usually prohibits the bank from establishing any business activities in the jurisdiction of establishment. Due to less regulation and transparency, accounts with offshore banks were often used to hide undeclared income. Since the 1980s, jurisdictions that provide financial services to nonresidents on a big scale can be referred to as offshore financial centres. OFCs often also levy little or no corporation tax and/or personal income and high direct taxes such as duty, making the cost of living high.

<span class="mw-page-title-main">Economic inequality</span> Distribution of income or wealth between different groups

Economic inequality is an umbrella term for a) income inequality or distribution of income, b) wealth inequality or distribution of wealth, and c) consumption inequality. Each of these can be measured between two or more nations, within a single nation, or between and within sub-populations.

A wealth tax is a tax on an entity's holdings of assets or an entity's net worth. This includes the total value of personal assets, including cash, bank deposits, real estate, assets in insurance and pension plans, ownership of unincorporated businesses, financial securities, and personal trusts. Typically, wealth taxation often involves the exclusion of an individual's liabilities, such as mortgages and other debts, from their total assets. Accordingly, this type of taxation is frequently denoted as a netwealth tax.

An excess profits tax, EPT, is a tax on returns or profits which exceed risk-adjusted normal returns. The concept of excess profit is very similar to that of economic rent. Excess profit tax can be imposed on individuals or corporations. Excess profit taxes are usually imposed on monopolist industries.

Taxation in the Netherlands is defined by the income tax, the wage withholding tax, the value added tax and the corporate tax.

<span class="mw-page-title-main">Economy of ancient Greece</span>

The economy of ancient Greece was defined largely by the region's dependence on imported goods. As a result of the poor quality of Greece's soil, agricultural trade was of particular importance. The impact of limited crop production was somewhat offset by Greece's paramount location, as its position in the Mediterranean gave its provinces control over some of Egypt's most crucial seaports and trade routes. Beginning in the 6th century BC, trade craftsmanship and commerce, principally maritime, became pivotal aspects of Greek economic output.

Taxes in India are levied by the Central Government and the State Governments by virtue of powers conferred to them from the Constitution of India. Some minor taxes are also levied by the local authorities such as the Municipality.

Optimal tax theory or the theory of optimal taxation is the study of designing and implementing a tax that maximises a social welfare function subject to economic constraints. The social welfare function used is typically a function of individuals' utilities, most commonly some form of utilitarian function, so the tax system is chosen to maximise the aggregate of individual utilities. Tax revenue is required to fund the provision of public goods and other government services, as well as for redistribution from rich to poor individuals. However, most taxes distort individual behavior, because the activity that is taxed becomes relatively less desirable; for instance, taxes on labour income reduce the incentive to work. The optimization problem involves minimizing the distortions caused by taxation, while achieving desired levels of redistribution and revenue. Some taxes are thought to be less distorting, such as lump-sum taxes and Pigouvian taxes, where the market consumption of a good is inefficient, and a tax brings consumption closer to the efficient level.

<span class="mw-page-title-main">Wealth inequality in the United States</span>

The inequality of wealth has substantially increased in the United States in recent decades. Wealth commonly includes the values of any homes, automobiles, personal valuables, businesses, savings, and investments, as well as any associated debts.

Redistribution of income and wealth is the transfer of income and wealth from some individuals to others through a social mechanism such as taxation, welfare, public services, land reform, monetary policies, confiscation, divorce or tort law. The term typically refers to redistribution on an economy-wide basis rather than between selected individuals.

<span class="mw-page-title-main">Government revenue</span> How the state collects money

Government revenue or national revenue is money received by a government from taxes and non-tax sources to enable it, assuming full resource employment, to undertake non-inflationary public expenditure. Government revenue as well as government spending are components of the government budget and important tools of the government's fiscal policy. The collection of revenue is the most basic task of a government, as the resources released via the collection of revenue are necessary for the operation of government, provision of the common good and enforcement of its laws; this necessity of revenue was a major factor in the development of the modern bureaucratic state.

A bank tax, or a bank levy, is a tax on banks which was discussed in the context of the financial crisis of 2007–08. The bank tax is levied on the capital at risk of financial institutions, excluding federally insured deposits, with the aim of discouraging banks from taking unnecessary risks. The bank tax is levied on a limited number of sophisticated taxpayers and is not especially difficult to understand. It can be used as a counterbalance to the various ways in which banks are currently subsidized by the tax system, such as the ability to subtract bad loan reserves, delay tax on interest received abroad, and buy other banks and use their losses to offset future income. In other words, the bank tax is a small reimbursement of taxpayer funds used to bail out major banks after the 2008 financial crisis, and it is carefully structured to target only certain institutions that are considered "too big to fail."

The Wealth Tax Commission in the United Kingdom was a group of experts studying the desirability and feasibility of a wealth tax. The three Commissioners, Arun Advani, Emma Chamberlain and Andy Summers, cooperated with a large network of academics, policymakers and tax practitioners to produce an extensive evidence base on the wealth tax. The Commissioners’ final report was released in December 2020, recommending that, if the government wants to raise more tax revenue, the introduction of a one-off wealth tax would be preferred to increasing other taxes.

In Ancient Rome, there were four primary kinds of taxation: a cattle tax, a land tax, customs, and a tax on the profits of any profession. These taxes were typically collected by local aristocrats. The Roman state would set a fixed amount of money each region needed to provide in taxes, and the local officials would decide who paid the taxes and how much they paid. Once collected the taxes would be used to fund the military, create public works, establish trade networks, stimulate the economy, and to fund the cursus publicum.

References

  1. Roberts, Jim (6 September 2015). "Ancient Greek Theatre: Choregos [χορηγός]". Ancient Greek Theatre.
  2. 1 2 Carmichael, Calum M. "Public munificence for private benefit: liturgies in classical Athens. - Free Online Library". www.thefreelibrary.com.
  3. McCannon, Bryan C. (1 December 2017). "Who pays taxes? Liturgies and the Antidosis procedure in Ancient Athens". Constitutional Political Economy. 28 (4): 407–421. doi:10.1007/s10602-017-9249-7. ISSN   1572-9966. S2CID   158330640.
  4. Christ, Matthew R. (1990). "Liturgy Avoidance and Antidosis in Classical Athens". Transactions of the American Philological Association. 120: 147–169. doi:10.2307/283983. JSTOR   283983.
  5. 1 2 Scheve, Kenneth; Stasavage, David (October 2010). "The Conscription of Wealth: Mass Warfare and the Demand for Progressive Taxation" (PDF). International Organization. 64 (4). Cambridge University Press: 529–561. doi:10.1017/S0020818310000226. S2CID   16896826. Archived from the original (PDF) on 12 April 2019. Retrieved 5 November 2022.
  6. "SCUSATE, MA ERAVAMO SUL BARATRO" (in Italian). la Repubblica. 1992-07-11. Retrieved 8 August 2015. Così dice Giuliano Amato per spiegare il nuovo balzello: 6 mila lire di imposta ogni milione
  7. "Trump proposes massive one-time tax on the rich". CNN. November 9, 1999.
  8. Bensasson, Marcus; Georgios Georgiou (2013-07-30). "Cyprus Sets Levy on Bank of Cyprus Uninsured Depositors at 47.5%". Bloomberg. Retrieved 8 August 2015.
  9. Conway, Edmund (2013-03-16). "The tragedy of Cyprus" . Retrieved 8 August 2015.
  10. 1 2 IMF Fiscal Monitor: "Taxing Times" Oct 2013, p.49
  11. Opdyke, Jeff. "A Confiscation Tax is Headed Your Way". The Sovereign Investor. Archived from the original on 27 December 2013. Retrieved 27 December 2013.
  12. Vasagar, Jeevan; Peter Spiegel (2014-01-27). "Bundesbank proposes wealth tax for EU states facing bankruptcy" . Financial Times. Archived from the original on 2022-12-11. Retrieved 8 August 2015.
  13. "Monatsbericht Januar: Anpassungen in den Peripherieländern schreiten voran" (in German). Deutsche Bundesbank. 2014-01-27. Retrieved 8 August 2015. diskutiert der Monatsbericht die Vor- und Nachteile einer einmaligen Abgabe auf private Vermögen zur Reduktion der staatlichen Schuldenstände
  14. "reuters.com: "Exclusive: EU executive sees personal savings used to plug long-term financing gap" (Jones) 12 Feb 2014". Reuters. 12 February 2014. Archived from the original on 30 September 2015. Retrieved 30 June 2017.
  15. Advani, Arun; Chamberlain, Emma & Summers, Andy (2020). "A wealth tax for the UK" (PDF). Wealth Tax Commission Final Report. doi: 10.47445/WealthTaxFinalReport . Retrieved March 10, 2021.
  16. "'Tax the wealthy to pay for coronavirus'". BBC . 2020-12-09. Retrieved 2021-03-10.
  17. Agyemang, Emma; Pickard, Jim (2020-12-09). "One-off 5% wealth tax would raise £262bn to cover Covid costs, study finds" . Financial Times . Archived from the original on 2022-12-11. Retrieved 2021-03-10.
  18. Partington, Richard (2020-12-09). "Economic cost of Covid crisis prompts call for one-off UK wealth tax". The Guardian . Retrieved 2021-03-10.
  19. Tax after coronavirus (PDF) (Report). Treasury Select Committee. 2021. Retrieved March 10, 2021.
  20. "One-off wealth tax might help fix COVID hit to UK budget: lawmaker". Reuters . 2021-02-15. Retrieved 2021-03-10.

Further reading