“But maybe one or two will surprise us and willingly part with some of their accumulated wealth”
More and more, we’ve been encountering proposals for the Philippine government to impose a wealth tax on the very rich who hold the levers of economic power in this country.
It was the Laban ng Masa political coalition organized in 2021 for the May 2022 polls that first raised this as a key component of their platform.
Then, more recently, the Makabayan bloc in Congress suggested the wealth tax as an alternative to the Maharlika Investment Fund, a form of sovereign wealth fund proposed by pro-administration allies at the start of the 19th Congress.
From another direction comes another proposal for a wealth tax, this time by a Philippine-based researcher contracted by the Brookings Institute, a renowned independent think-tank based in Washington, D.C.
The research group, established way back in 1916, analyzes public policy issues and suggests pragmatic and innovative ideas on how to solve problems faced by society.
But what exactly is a wealth tax? Internet research yields useful information on the subject.
A wealth tax, also called capital tax or equity tax, is a tax based on the net fair market value (assets minus liabilities) of a taxpayer’s assets, including cash, bank deposits, shares, fixed assets, vehicles, real property, pension plans, money funds, owner-occupied housing, and trusts.
A wealth tax seeks to distribute the tax burden more fairly in a society with a huge gap between the rich and the poor.
At present, only four countries, namely France, Norway, Spain, and Switzerland, levy a wealth tax.
In the early 1990s, however, 12 countries imposed a wealth tax, a clear indication that the attraction of this form of taxation has greatly diminished.
Direct wealth taxes have been junked in several countries over the past few decades, partly because they tend to drive away wealthy people and hinder foreign investment.
Wealth tax drumbeaters see it as one way to boost the government’s resources for public spending by taking extra money from those who don’t really need it.
This tax generally only applies to the wealthiest, on the assumption that the taxes they pay to the government will have very little or no impact on their quality of life.
Those in favor of wealth taxes are convinced that this type of tax is more equitable than an income tax alone, particularly in societies with significant wealth disparity.
They say that a system that raises government revenue from both the income and the net assets of taxpayers will promote fairness and equality by taking into account taxpayers’ overall economic status, and thus, their ability to pay taxes.
Critics, however, claim that wealth taxes discourage the accumulation of wealth, which they insist drives economic growth. They also emphasize that wealth taxes are difficult to administer.
The enforcement of a wealth tax presents challenges not typically found in income taxes.
The difficulty of determining the fair market value of assets that lack publicly available prices leads to valuation disputes between taxpayers and tax authorities.
Uncertainty about valuation could also prod wealthy individuals to resort to tax evasion.
To recap, a wealth tax is difficult to administer, tends to encourage tax evasion, and has the potential to drive the wealthy away from countries that enforce it.
These, along with questions on how to implement it fairly, perhaps explain why so few countries in the world impose such a tax on their residents at present.
What’s the difference between an income tax and a wealth tax?
An income tax computes the flow of the additions in value that a taxpayer realizes, whether as earnings, investment returns such as interest, dividends, or rents, and/or profits on disposition of assets during the year.
A wealth tax, on the other hand, involves the net value of the assets accumulated over time and owned by a taxpayer as of the end of each tax year.
Some developed countries choose to tax wealth, although the United States has historically relied on taxing annual income to raise revenue.
An ad valorem tax (computed in proportion to the estimated value of the goods taxed) on real estate and an intangible tax on financial assets are examples of a wealth tax. Generally, countries that impose wealth taxes also impose income and other taxes. In the United States, federal and state governments do not impose wealth taxes.
Instead, the U.S. imposes annual income and property taxes.
However, some consider property tax a form of wealth tax, as the government taxes the same asset year after year. The U.S. also imposes an estate tax on the death of individuals owning high-value property.
Given all this, do you think a measure imposing a wealth tax can prosper in our own Congress?
That’s highly unlikely, considering that most legislators belong to the affluent sections of society.
Will the superrich here – the multi-billionaires consistently ranked among the richest in Asia – take kindly to the idea of parting with money they say they’ve earned through blood, sweat and tears over the decades?
That, too, seems to be an impossibility as they are likely to fight tooth and nail to keep their wealth intact.
They will say that they already give many people jobs and create wealth that makes the economy grow.
But maybe one or two will surprise us and willingly part with some of their accumulated wealth.
Or perhaps even give up all or most of their wealth to charitable and humanitarian causes.
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