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Germans propose a one-off wealth tax to pay down the debt

Hardline deficit hawks sometimes make surprising moves.

According to Der Spiegel, Germany's center-left Social Democratic Party and the Green Party are proposing a windfall tax on the wealthy in order to curb the country's debt.

Norbert Walter-Borjans, finance minister for North Rhine-Westphalia lander proposed that a one per cent tax be applied to the wealth of assets exceeding €2m. Der Spiegel writes:

With the tax, the politician said, Germany's wealthiest people would play a role in consolidating the country's national budget. At only 1 percent, he added, the tax would not present a major burden on the rich. Walter-Borjans said his state, along with Rhineland-Palatinate, Baden-Württemberg and Hamburg all governed by the SPD or Greens planned to introduce an initiative in the Bundesrat, Germany's upper legislative chamber representing the interests of the states, where the opposition also holds a majority of votes, after the summer recess.

The tax was originally proposed by the German Institute for Economic Research (DIW), although their plan was more audacious, calling for a tax on assets above €250,000. That one-off levy would aim to raise a tax revenue of €100bn and would be paid on a flat-rate basis in various installments.

Pundits remain sceptical, citing the wealth tax that was scrapped in 1997:

Germany began taxing household and corporate wealth in the 1970s, but in 1995 the Federal Constitutional Court ruled against the levy for taxing different kinds of assets in an unequitable way. The Karlsruhe court's decision came amid a wave of European countries abandoning their wealth taxes after finding that they were administratively costly to implement and had induced capital flight.

To prevent those problems, the authors of the DIW paper believe it should be confined to individuals, in order to prevent the "double taxation of incorporated firms" and "exclude foreign shareholders from taxation, as well as domestic non-commercial institutions such as governmental bodies, religious communities, associations, unions, etc".

Furthermore, the academics hold that "if potential taxpayers expect that the capital levy will be repeated, this could discourage long-term saving and investment, while encouraging capital flight", and therefore suggest a one-off tax.

The paper goes on to detail that capital levies have been successful in the past:

Eichengreen argues that even if its recurrence cannot be ruled out, a capital levy can be welfare improving if adopted to redress debt problems created by extraordinary circumstances. Historically, this was often the case during or after great wars. In particular, after World War I, several European countries considered capital levies, some implemented them, and, in most cases, the levies failed. Problems of practicability and tax enforcement arose, capital flight occurred since the political deliberations caused delay, and property owners heavily resisted the levy. However, successful capital levies were implemented in post-World War II Japan and Germany. In particular, the capital levy as the principle financing source in the German "burden sharing" (Lastenausgleich) legislation of 1952 was rather successful in raising funds for war indemnities and reconstruction

Nonetheless, as both the Institute and the WSJ stress, asset valuation would be a tedious, costly process. To curtail this - at least partially - the paper defends that it would be more efficient to tax a smaller percentage of the population slightly more.