Looming Threat to Your Personal Wealth
Looming Threat to Your Personal Wealth
The pandemic has devastated government finances around the world. Savage shutdowns have destroyed millions of businesses and crippled many more, pushing them into debt to survive. Panicked governments have abandoned all worthy ideals of fiscal and public debt responsibility as they spend trillions of dollars to counter the damage done by their own measures. Yet we haven’t come to the end of the bad news.
Not surprisingly, policymakers and commentators have turned their thoughts to rectifying the financial damage. What’s to be done? Restive populations are resistant to tax hikes and a return to fiscal austerity. They are likely to become angrier as they recognize that anti-pandemic measures were unnecessarily pressed to extremes.
The solution, it seems certain, will be to impose special “emergency” taxes on the rich, both individuals and businesses. It’s an idea favoured with enthusiasm by the intellectual classes who see an opportunity to reverse the long trend towards inequality brought about by globalization, A trend of which they have been the main beneficiaries == but which they recognize is behind the rising power of populist leaders who endanger their dominance.
Karl Schwab – the founder of the elitist Davos club, the World Economic Forum – has made as the theme of its annual conference this year a “great reset of capitalism.” Its key will be that wealth “needs to be redistributed.”
Worldwide governments are responding with alacrity to an idea that offers the potential for huge financial rewards with intellectual respectability… and popular appeal. Taxes are to be imposed on wealthy individuals, levies on the fabulously rich infotech giants such as Alphabet and Amazon.
In America the new administration is looking to raise taxes on everyone earning more than $400,000 a year. But that won’t bring in a fraction of what’s needed to pay for the avalanche of spending that policymakers are hungry to make. That makes it a near-certainty that the attack on personal wealth will be broadened, and sustained.
Joe Biden himself is said to be opposed to taxing wealth directly, beyond income
and capital gains. But his record suggests he will probably flip under pressure from progressives. Democrats in Washington state are planning to introduce a wealth tax on the billionaires “who have benefited most from the pandemic. It’s a state that is home to some of those with the world’s biggest fortunes such as Jeff Bizos, Bill Gates, Steve Ballmer.
In Britain an independent commission has called for a levy on individual wealth of everyone owning assets of more than £500,000 (that’s about $685,000), which would bring in more than £260 billion ($356 billion), or about a third as much as all government revenue in the last fiscal year. Others have mooted the idea of a special levy on all second homes, which are widely owned as family investments.
In Europe a wealth tax would hit hardest in Germany, the nation on the Continent with the most billionaires The Social Democrats and the radical Die Linke party have already come out in favour of such a levy. Chancellor Angela Merkel is hostile to the idea, but she’s another politician known for giving way to pressures from the Left. And in any case, she won’t be in power for much longer.
In Latin America Argentina approved a one-time wealth tax last month. In several other countries in the region, such as Chile, Bolivia and Peru, lawmakers want to follow suit.
Wealth taxes are not a new idea. In fact they’re an old one that has been going out of fashion. In Europe there were a dozen countries that used to have wealth taxes; now there are only three.
The problem is such taxes are very expensive to administer.
If limited to those taxpayers who a very rich, those are the very ones best able to hire the brightest experts to design and implement evasion strategies, or even relocate to the nicest tax havens, such as Monaco.
If broader-based, such levies would tax personal capital such as family homes and pension pots and generate intense opposition. The one-off levy proposed in Britain would hit more than 16 per cent of the adult population.
Nevertheless, hard times such as these could lead policymakers to grab what seem to be easy “temporary” solutions and ignore the deficiencies of wealth taxes.
If you are wealthy – or even just have enough to bring you within the scope of a relatively widely-drawn universe of potential targets – what should you consider doing?
One adviser says it’s probably too late to implement tax avoidance measures, but that’s not necessarily so. Among the options worth consideration, depending on your tax residency, are trusts, holding companies, real assets such as precious metals or property, gifting to children, deferring income, option programmes, international diversification of where your wealth is held.
You may even consider relocating yourself to some nice place to live where the authorities won’t be hungry to tax your personal wealth… if at all.
Looming Threat to Your Personal Wealth taken from our ‘On Target Newsletter’ issue no 263
