The populist notion of taxing the rich once again turned up in the International Monetary Fund’s Fiscal Monitor Report released in October, but scarcely anyone noticed. In an arcane chart-laden 107-page-long report that was competing at the time with the government shutdown, the failing rollout of ObamaCare, and other concerns, crises, and disasters, why should they?
Here’s why. On page 49, the authors said, "The sharp deterioration of the public finances in many countries has revived interest in a 'capital levy' — a one-time tax on private wealth — as an exceptional measure to restore debt sustainability."
Let’s be clear: That tax would apply to all private wealth on the planet. And it wouldn’t balance budgets but would only bring them down to a slightly more manageable level so that government borrowing and spending could continue without interruption. The levy would have to be implemented rapidly, before the wealthy could react and move their assets, or themselves, out of harm’s way: "The appeal is that such a tax, if it is implemented before avoidance is possible … [will not] distort behavior."
If such a tax were delayed in implementation, governments that had borrowed and spent too much might not be able to confiscate enough money to escape short-term financial trouble and would have to default on their promises or inflate them away:
The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away (these, in turn, are a particular form of wealth tax — on bondholders).
This is where the IMF’s interests really lie: Those bondholders, including central banks, which have allowed governments to exceed their borrowing capacity and are now facing the threat of severe haircuts through either default or inflation.
Just how much would the IMF's “capital levy” be? Say the authors:
The tax rates needed to bring down public debt to precrisis levels are sizable: reducing debt ratios to end-2007 levels would require … a tax rate of about 10 percent on households with positive net worth.
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