The International Monetary Fund (IMF) says that taxes on high-income earners and corporations can help advanced economies raise revenues to recover from the global pandemic.
Rebuilding from Covid-19 offers an opportunity to reverse the erosion in personal income taxes paid by the highest earners, Vitor Gaspar, the director of the IMF fiscal affairs department, told reporters this week.
“One specific option that is available to policymakers would be a Covid-19 recovery contribution that could take the form of a surcharge on personal income tax or a surcharge on corporate-income taxes given that some corporates have done very well in terms of stock-market valuation,” Gaspar said.
“There is an opportunity there, and that’s one of the options that is on the table.”
The IMF has also been calling for a minimum global corporate income-tax rate as a way “to interrupt the race to the bottom in corporate-income taxation,” Gaspar said.
“It’s important to ensure that governments have the resources needed for their spending priorities, and a minimum rate is something that we believe can be extremely important for the financing of the developing countries,” he said.
However, a wealth tax is a bad way to pay off pandemic debts and probably would become permanent if introduced, Nobel Prize-winning economist Angus Deaton told Bloomberg.
Levies on high-earners would be “very difficult to implement” and give the wealthy “huge incentives to avoid it – and avoid it they will,” said Deaton, a Princeton University professor who is working on an official study of inequality in the UK.
The remarks brush against a growing number of politicians calling for the richest to shoulder more of the burden of the record borrowing taken on by governments to prop up economies hit by Covid-19.
The International Monetary Fund this week said a temporary levy would help to alleviate social inequalities that have deepened in the pandemic
The author of the book “Deaths of Despair,” which he co-wrote with his wife and fellow economist Anne Case, said in an interview that a one-time wealth tax is “likely to turn permanent,” just as the income tax did.
Britain introduced taxes on pay to fund the Napoleonic War, and now it’s one of the most prominent sources of revenue.
After a decade of austerity in Britain following the financial crisis, Deaton also recommended against cuts to social services, warning that “the doomsayers, the deficit hawks, the austerity mavens” created a disaster by slashing funds for health and education.
He’s leading a panel of experts in the UK probing how to reduce inequalities, where the young and those with less education increasingly fall behind the wealthy. The Institute for Fiscal Studies plans to publish its findings in 2023.
Deaton said the pandemic accentuated trends already unfolding in both the US and UK For one, education is becoming a more important variable in determining life outcome of people.
Also, unemployment is becoming less useful as an indicator of economic heath. While a recovery from recessions caused by the pandemic will create jobs, Deaton said many more are being left behind.
“In economic booms, it always picks up, but it never picks up as far as the previous peak,” Deaton said. “You get this endless downward ratchet. That’s something we really need to turn around, and it’s going to be hard.”