The Daily Update: Cuba Without The Sun

Over the last few weeks, it has been reported numerous times that the new Biden administration hasn't ruled out the idea of a wealth tax as progressive Democrats lean on the new president to adopt the policy into any tax reform package. White House press secretary Psaki has even gone as far as saying that ‘There is a shared view that those at the top are not doing their part, and that corporations could pay more in taxes’. Indeed Elizabeth Warren, the senator from Massachusetts, introduced a new bill to Congress called the Ultra-Millionaire Tax Act. The legislation would implement a 2% annual wealth tax on Americans that have at least $50 million in wealth and a 3% tax on those with at least $1 billion in wealth.

Of course, the idea of a wealth tax is not new, and many countries have tried to implement one, with very little success. Not only is it nearly impossible to enforce, first you must determine a person’s actual net worth. In the early ’90s, 12 countries on this side of the pond had a wealth tax, today that number is just 3. According to the OECD, there are many reasons why wealth taxes fail, not least because they are hardest on those who are asset rich but cash poor, they distort investment decisions and will indeed push the ultra-rich to move countries, plus in the grand scheme of things, they have never raised much money.

France is the prime example of how a wealth tax did not work. In 1982, Francois Mitterand, France’s president, introduced a wealth tax however, that was swiftly abolished by Jacques Chirac in 1986. Two years later when Mr Mitterand was voted back in it was reinstated and stayed in place until 2017, when it was abolished by current president Emmanuel Macron. The revenue it raised was paltry.

Far more damaging was the exodus of France’s richest. More than 12,000 millionaires left France in 2016, according to research group New World Wealth. In total, they say the country experienced a net outflow of over 60,000 millionaires between 2000 and 2016. Of course, when these people left, France lost not only the revenue generated from the wealth tax, income tax and VAT, but also the many thousands of jobs that relied on servicing high net worth clients.

As Emmanuel Macron, the then economic minister said when socialist president Francois Holland imposed a 75% levy on earnings above €1m in 2012, it made France a ‘Cuba without the sun!’.