Capital levy

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File:Capital Levy - Asquith - Punch cartoon - Project Gutenberg etext 16394.png
The Conscientious Burglar.
Paisley humanitarian. "If I could only be quite sure that I shouldn't be discouraging him from saving."

"Mr. Asquith has pronounced himself cautiously in favour of a capital levy, on the condition, amongst others, that it must not be allowed to discourage the habit of saving." Cartoon from Punch magazine, February 11, 1920, illustrating part of the dilemma for governments pondering the use of a capital levy.

A capital levy is a tax on capital rather than income, collected once rather than annually. For example, a capital levy of 30% will see an individual or business with a net worth of $100,000 pay $30,000 in tax, regardless of income. It is considered difficult for a government to implement, as the confiscatory nature of taxation is more apparent than with income tax. Thus, once such a levy is enacted, capital flight is likely to ensue.

Examples of capital levies: the Italian government of Giuliano Amato imposed a 0.6 percent levy on all bank deposits on 11 July 1992;[1] and the Cypriot government levied 47.5 percent of Bank of Cyprus deposits over one hundred thousand Euros in July 2013.[2][3]

Some economists argue that capital levies are a disincentive to savings and investment, but others argue that in theory this need not be the case. The latter view has gained some acceptance as more and more heavily indebted nations struggle to raise revenues; in October 2013, the International Monetary Fund released a report stating, "The sharp deterioration of the public finances in many countries has revived interest in a 'capital levy' – a one-off tax on private wealth – as an exceptional measure to restore debt sustainability. The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior."[4][5] The next year the Bundesbank proposed that Eurozone countries should attempt a one-off levy of bank deposits to avoid bankruptcy.[6][7]

A February 2014 report by Reuters showed the idea had gained traction in the European Commission, which will ask its insurance watchdog later that year for advice on a possible draft law "to mobilize more personal pension savings for long-term financing".[8]

See also

References

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  5. IMF Fiscal Monitor: "Taxing Times" Oct 2013, p.49
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  8. reuters.com: "Exclusive: EU executive sees personal savings used to plug long-term financing gap" (Jones) 12 Feb 2014

Further reading