From Stefan Bach, Gert Wagner, 15 August (VOX)
The European debt crisis drags on, dragging Europe down with it. This column argues that one-off capital levies – taxes on the rich – is one way of financing debt reduction. This could be an important step towards deleveraging public budgets without severely damaging the economy.
Neither Germany’s chancellor Angela Merkel nor the Social Democrat opposition leaders are likely to agree to further bail-outs for the countries in crisis. They fear a storm of popular outrage using national tax funds for European 'debt collectivisation' (Birchler and Bütler 2012). The governments of other solvent countries such as the Netherlands, Austria, and Finland are under similar pressures. This is also why Germany and company oppose further bailouts by the ECB.
But all this naysaying does not bring the sovereign debt problems in some Eurozone nations any closer to an end. The crisis rolls on. If it lasts long enough, the problems may drag the Eurozone into a negative spiral of recession and debt that risks exacerbating the crisis and a possibly leading to the collapse of the Eurozone.
In the face of these multiple dilemmas, governments should consider imposing one-off capital levies on the rich in order to refinance and bring down national debt (Bach 2012, Bach et al. 2011). One-off capital levies The idea behind this is straightforward enough.
• Increased levels of public debt are accompanied by mounting private wealth, which is increasingly concentrated on the wealthy elite. In Germany, for example, two thirds of the national wealth belongs to the richest 10% of the adult population.
• According to our analysis, a one-time capital levy of 10% on personal net wealth exceeding 250,000 euros per taxpayer (€500,000 for couples) could raise revenue of just over 9% of GDP. The wealthiest 8% of the adult population would be liable to the levy. Even with higher allowances of, for instance, €500,000 and €1 million, the levy could raise revenue of about 6.8% and 5.6% of GDP respectively. The number of taxpayers would sink to 2.3% and 0.6% of the adult population.
• In the other Eurozone crisis countries, it would presumably be possible to generate considerable amounts of money in the same way. To read the complete article, click here
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