Escape-Proofing a Wealth Tax
The Panama Papers confirmed what everyone already knew about the world’s rich: that through legal intricacies and obfuscations, they park their assets in favorable tax and regulatory jurisdictions. For this reason, there is common skepticism about the possibility of implementing a wealth tax that could function effectively. Zucman and Saez, however, make a strong case that it can be done.
By design, a modern wealth tax would apply to the worldwide assets of any Canadian citizen or resident above the established threshold (in a similar fashion to the US requirement for its citizens to pay taxes even if they live and work abroad, with a credit applied for any foreign tax paid). This means shifting funds to low-tax jurisdictions won’t get you off the hook — at least in terms of legal obligations.
Some suggest that the wealthy will go as far as renouncing their citizenship, but that won’t help them either. A much steeper “exit tax” would be applied in that circumstance, in recognition of Canadian society’s contributions to these fortunes.
Exit tax rates are set at a rate of 40 percent in the Sanders and Elizabeth Warren wealth-tax plans and could be set even higher if needed. Besides, in an uncertain and unstable world, many of the superrich may think twice before giving up their Canadian passport.
The biggest concern is that the wealthy will engage in blatantly illegal tax evasion, flouting the law to hide or misreport their wealth in tax havens. That means ramping up tax enforcement and cracking down on tax avoidance and evasion is critical if we are going to make a wealth tax work.
The good news is that, as Zucman and Saez emphasize, we know a great deal already about how to crack down on tax havens. Key elements would include targeting the financial services industry that helps enable avoidance and evasion schemes, stronger data-transparency requirements for any banks doing business with Canada, and greater resources and penalties for tax enforcement. What’s needed is political will.
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