Households in the U.S., Europe and Japan may soon face fiscal shocks worse than any market crash. Powerful economic players are deciding that with an ever-deteriorating global fiscal outlook, conventional levels and methods of taxation will no longer suffice. Indebted governments may soon consider making weapons of mass wealth destruction , such as the IMF’s one-off capital levy, Cyprus’s bank deposit confiscation, or outright sovereign defaults, likelier by the day.
So says Romain Hatchuel (online.wsj.com) in paraphrased excerpts from his original article* entitled The Coming Global Wealth Tax.
[The following is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Hatchuel goes on to say in further edited excerpts:
The White House and New York Mayor-elect Bill de Blasio aren’t the only ones calling for higher taxes (especially on the wealthy), as voices from the International Monetary Fund to billionaire investor Bill Gross increasingly make the case too.
In his November investment commentary for bond giant Pimco, Mr. Gross asks the “Scrooge McDucks of the world” to accept higher personal income taxes and to stop expecting capital to be taxed at lower rates than labor.
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The IMF’s latest Fiscal Monitor report argues that taxing the wealthy offers “significant revenue potential at relatively low efficiency costs.” The context for this argument is the IMF’s expectation that in advanced economies the ratio of public debt to gross domestic product will reach a historic peak of 110% next year, 35 percentage points above its 2007 level….
What the IMF calls “revenue-maximizing top income tax rates” may be a good indication of how much further those rates could rise. As the IMF calculates, the average revenue-maximizing rate for the main Organization of Economic Cooperation and Development countries is around 60%, way above existing levels. For the U.S., it is 56% to 71%—far more than the current 45% paid in federal, state and local taxes by those in the top tax bracket.
In the United States, the expiration of the Bush tax cuts pushed the highest federal income tax bracket to 39.6% from 35%. The IMF singles out the U.S. as the country where raising top rates toward 70% (where they were before the Reagan tax cuts) would yield the most revenue—around 1.25% of GDP. With a chilling candor, the IMF admits that its revenue-maximizing approach takes no account of the well-being of top earners (or their businesses).
Taxes can rise in ways both prominent and subtle. In the United Kingdom, the highly advantageous “resident non-domiciled” status—requiring wealthy residents to pay taxes on overseas earnings only if they “remit” the money to the U.K.—has become much harder to qualify for and more costly after recent reforms.
In France, President François Hollande finally managed to pass a 75% tax on income above one million euros and now he is seeking to limit the tax benefits of “life insurance contracts,” a long-term savings instrument used by most wealthy households. As for the uniquely French “impôt sur la fortune,” taxing those with net worth above 1.3 million euros, it is alive and well.
Japan too is taking steps to increase personal taxation, though it hasn’t yet targeted top earners in particular.
In October the IMF floated a bold idea that didn’t get the attention it deserved: lowering sovereign debt levels through a one-off tax on private wealth. As applied to the euro zone, the IMF claims that a 10% levy on households’ positive net worth would bring public debt levels back to pre-financial crisis levels….
From New York to London, Paris and beyond, powerful economic players are deciding that with an ever-deteriorating global fiscal outlook, conventional levels and methods of taxation will no longer suffice. That makes weapons of mass wealth destruction—such as the IMF’s one-off capital levy, Cyprus’s bank deposit confiscation, or outright sovereign defaults—likelier by the day.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://online.wsj.com/news/articles/SB10001424052702304355104579232480552517224 (Copyright ©2013 Dow Jones & Company, Inc. All Rights Reserved.)
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