A wealth tax to address five global disruptions


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If revealed preference is anything to go by, most countries are extremely hesitant to introduce wealth taxes. But if ever there were a time that wealth taxes could help, it may be now.

A wealth tax can address at least five disruptors and so help the world in 2021 and beyond. 

First, we can agree now that inequality is out-of-hand. Studies in country after country identified similar trends. The very wealthy are getting far wealthier. The poor keep losing out; about 100 million people were pushed into poverty by COVID-19 during 2020 alone, with the number expected to rise to at least 150 million by end 2021.

Second, the world is in a fiscal hole. Governments dipped deep to deliver health and frontline pandemic services while providing financial relief to individuals and businesses. Deficits are feeding record levels of debt, while spending needs are yet to subside and revenues have softened. Advanced country public debt is forecast to rise by 20 percent of GDP by end 2021, while emerging and developing country debt will rise by 10 percentage points

Third, the stock market has gone into a frenzy for stocks that offer a dependable and growing revenue bundle (given the name a ‘rundle’ by Scott Galloway). Rundles are typically associated with sources such as subscription income, especially among companies that have SAAS income (Subscription as a Service). Rundles reduce income volatility, even in highly volatile sectors.

Fourth, it is more difficult now for the superrich to stash their cash in far flung tax shelters. There have been high profile cases outing grand corruption and extreme tax minimization, (the Mossack Fonseca aka Panama Papers, Kleptopia etc), but the real story is the general trend. In country after country, BEPS measures (Base Erosion and Profit Shifting) are biting. Some 125 countries are now members of the BEPS steering body, the Inclusive Framework.

Fifth, the social contract is being tested. Polarization, radicalization, the creation of specialist social media feeding outlandish views and public policy failures in addressing the coronavirus have meant that in many countries, the social fabric is fraying. Trust is suffering. 

Now is the time to consider a wealth tax. It can support fairness and deliver serious recurring revenue.  This can help close the inequality gap, plug the fiscal hole and win back trust. According to forthcoming work at the World Bank, taxpayer compliance is bolstered by rebuilding trust; and an important element of that trust comes from the sense that taxes are fair.

New work from the UK wealth tax commission (A Wealth Tax for the UK) suggests that  a proposal for wealth taxation can work. The commission reviewed proposals and evidence through five lenses: that the tax should raise substantial revenue; be efficient; be fair; be difficult to avoid; and it should achieve the first four objectives better than any alternative.

The commission considered a one-off wealth tax, reforming current taxation from the perspective of wealth and an annual recurring wealth tax. It liked the idea of reforming existing taxation which it described as seriously defective in taxing wealth, and acknowledged that an annual wealth tax would only be justified ‘if the aim was specifically to reduce inequality by redistributing wealth’. The commission appreciates the difficulties in administering such a tax but does so while also acknowledging ‘the public concern that the gap between rich and poor is too large’. 

It also acknowledges that while arguments to exempt certain assets will be rife, the evidence suggests that such exemptions could stimulate widespread ‘asset-shifting’. It notes the advisability of moving quickly as deliberation can be ambushed by lobbyists undermining important aspects of the proposal. It says that about seven percent of wealth taxpayers could be classed as ‘liquidity constrained’ (asset rich; income poor).

With the twin facets of observed declines in tax buoyancy through time for all countries and compressed overall tax buoyancy rates in developing countries, an annual wealth tax offers a potential fillip on the revenue side. Designed well, it could be a new tax rundle. 

Rather than seeing the resolution of the impending public finance crisis as a problem where ‘something’s gotta give’, an annualized wealth tax provides a way to meet at least a part of the problem through ‘someone’s gonna give’.  There may never be a more opportune time.


Editor's Note: Jim Brumby initiated the Bank’s Global Tax Program in 2015, and the Platform for Collaboration on Tax with the IMF, OECD and UN shortly thereafter. His most recent blog on wealth taxation was with Michael Keen of the IMF ‘Game changers and whistle blowers: taxing wealth’.

David Harold Chester
January 08, 2021

I think your ideas need more development. Firstly what do we mean by wealth? Money is not wealth only a means for showing the ability to obtain some of it. If we are only involved with investment in the shares of companies, then this kind of wealth is like the money. Wealth is actually the durable capital goods, like the buildings, tools, transport equipment and infrastructure on which transport happens. Many people think that land is also wealth but in fact it behaves in a different way to the durable capital goods mentioned above and the wealth of land should be treated separately.

When a building is taxed according to its floor area and its location, the effect on the owner is to make it less big in size or to not add to it and even to reduce the amount invested in it. This opposes the trend for having greater business and more prosperity. It will apply to all of the city or even all of the country where it is enforced. Thus a tax on wealth can negate progress.

However when land values (being the other kind of wealth) are taxed it has the opposite effect. The sites that were not being used (for speculation in their rising values) will now become not worthwhile to leave empty, and so a tax on land values is an incentive tax toward more efficient land use and greater prosperity. The following effects are the economic and social effects of a land value tax or LVT:

17 Aspects of LVT Affecting Government, Land Owners, Communities and Ethics

Four Aspects for Better Government:
1. LVT, adds to the national income as do other taxation systems, but it should replace them.
2. The cost of collecting the LVT is less than for any other kind of production or capital goods related tax. It is more efficient and tax avoidance becomes impossible. Sites of land are visible to all and their ownership is public knowledge, due to the introduction and use of land-value maps with tables of sites (parcels), with formal numbering and definitions of them.
3. Consumers will pay less for their purchases, due to lower production costs (see below) and no purchase tax. This means there is more satisfaction with the better management of our national and local affairs, which are seen to be on a fairer basis, without favouring the wealthy.
4. The speculation in its selling price and the withholding of unused land is mostly eliminated, see item 7, and the national economy stabilizes. It no longer experiences the 18 year business boom/bust cycle, due to periodic speculation in land values (see below).

Six Aspects Affecting Land Owners:
5. LVT is progressive–owners of the most potentially productive sites pay the most tax. Urban sites provide the most productivity and should be charged the greatest resulting tax. Comparatively, rural sites have less productivity and associated value. As a result they are farmed for production in an appropriate way and at a lower cost.
6. The land owner pays LVT regardless of how the site is used, but according to its potential for use. Nearly all of the existing ground-rent from tenants becomes the LVT. This results in the land eventually having less sales-value but it retains a significant rental-value, even when it is unused.
7. LVT stops speculation in land prices because the withholding of land from proper use will no longer be worthwhile. It costs the land owner the same, regardless of its actual use, or when this opportunity is lost by the withholding of the site from access for production, residence, etc.
8. The introduction of LVT initially reduces the sales price of sites, because more of them become available and the competition for the access rights to them becomes less fierce. Their rental values grow over a longer term due to the increase in the local infrastructure, which is a required aspect during the greater resulting site development.
9. With LVT, land owners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that become available, from item 7 above.
10. Speculators and monopolists in real-estate will want to foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-shares, etc., and simultaneously to meet the increased demand for produce (see below, items 12 and 13).

Three Aspects Regarding Improved Communities:
11. With LVT, there is an incentive to better use the land for production, commerce and residence, rather than it being left idle. Communities become more efficient in communications, introduce less sprawl and improve their living standards.
12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper too, because entrepreneurs have less difficulty in starting-up their businesses. They initially pay less ground-rent and production costs will fall, goods supply will grow and unemployment will decrease.
13. Previous investment money is withdrawn from land and instead is placed in the shares of companies and used for purchasing durable capital goods. This means more advances in technology, greater productive efficiency and cheaper goods, too.

Four Aspects About Ethics and Social Justice:
14. The collection of taxes from productive effort and commerce is seen as socially unjust. It reduces the progress of the nation (due to the need for a big tax collection “army”) and certainly redistributes where the money goes. The rent and added sales-values of land due to its monopolization and non-use, are generated without any exertion on the part of the land owner or by the banks. LVT replaces this national extortion by gathering the surplus rental income–LVT being a natural system of national income-gathering.
15. The previous degree of bribery and corruption, for gaining privileged information about proposed land developments, will cease. This previously was due to the leaking of news of municipal plans for housing and industrial development, causing shock-waves in local land prices (and municipal workers’ and lawyers’ bank balances).
16. The improved use of the more central land sites of cities reduces the environmental damage and pollution due to a) unused sites being dumping-grounds and b) the smaller amount of fossil-fuel use when travelling between home and workplace.
17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way–to provide more jobs because their production costs are reduced. Then untaxed earnings will correspond more closely to the value that the labour puts into the product or service. Consequently, after LVT has been properly and fully introduced as a single tax, it will eliminate poverty and improve business ethics.


Giuseppe Mascoli
January 08, 2021

Excellent piece, thanks.

Deryck R. Brown
January 08, 2021

Thanks for this piece on a wealth tax which I read with interest. You mention 5 reasons why this might be the appropriate time to consider some kind of “annualized wealth tax” but, in my view, there is a 6th reason that you alluded to but could’ve mentioned far more explicitly. Cutting taxes on the wealthy is an ideological position typically associated with the conservative forces in society (most notably the GOP in the US and the Conservative Party in the UK). It was commonly recognizable by the title “trickle-down economics.” There is more than ample evidence now, however, that trickle-down economics does not work (see the paper published by the LSE last month) yet it still remains the major justification cited by conservative politicians for reducing taxes on the wealthy. The underlying assumption is that it will enable a greater share of profits to be re-invested, expanding production capacity, increasing employment and wages. To the contrary, however, the evidence suggests that it has resulted in the “asset shifting”, wealth accumulation and inequality that we now face - to which you refer.

The key question, to my mind, is why /how conservative political parties and their allied economists continue clinging to a failed ideology in the face of now substantial evidence over many years that it does not work (i.e. does not produce the results they claimed it would). We like to talk about “evidence-based policy making” but there is also a lot of “policy-based evidence making” that goes on. In other words, the political class can easily find an "economist" to put a respectable gloss on just about any policy position they take.

Jim Brumby
June 09, 2021

Thanks for this comment. I agree that the tax mix needs changing. A broad-based rundle style wealth tax, augmented by bearing down on contrived asset switching and the use of tax havens, could add legitimacy to the tax system and increase revenue to assist provision of broader opportunities. Good for development, growth and inclusion.

Jan Verboom
May 14, 2021

Dear Sir,

Where you refer to "inclusive framework" the link reference is to
"c:\Users\WB500574\AppData\Local\Microsoft\Windows\INetCache\Content.Outlook\RH1R1QBO\OECD, https:\www.oecd.org\tax\beps\beps-about.htm\"
Should it not be "https:\www.oecd.org\tax\beps\beps-about.htm\" ?

By the way thanks for this interesting blog.
Taxes are the price we pay for civilization.

June 08, 2021

Thank you for alerting us to this incorrect link! The link has been corrected in the text.