Can a Deeply Unequal Nation Totally Reverse Course?

“Reforms are either made the first year,” Petro explains, “or they are not made at all.”

What can Petro reform in his first year? He’s taking a particular aim at Colombia’s tax system. Taxes currently, Petro explains, can claim to be progressive “up to the upper middle class” since the upper middle class pays more in taxes than the middle class and the middle more than the working class.

“But above the upper middle class lies injustice,” says Petro. “A banker pays proportionally fewer taxes than the secretary in his office. And that cannot be.”

The wealth tax that Petro formally proposed on his first August day in office bears no resemblance to the “wealth tax” that’s been sitting in Colombia’s tax code for over a century. This aged levy applies only to the original purchase price of assets like stocks, bonds, and real estate and doesn’t take the current value into account. For Colombia’s richest, the tax amounts to a minor irritant at worst.

Petro’s proposed wealth tax would, by contrast, force Colombia’s wealthiest to pay an annual 1 percent annual tax on all personal asset value over $1.1 million, with that value based on present-day market rates. Asset value between about $600,000 and $1.1 million would face a 0.5 percent tax.

Petro’s wealth tax, as proposed, would fall on only the wealthiest 0.02 percent of Colombia’s population. A somewhat wider swatch of Colombia’s most affluent would find themselves with significantly higher tax bills if Petro’s proposed tax increases on dividend income work their way into law. Petro also has a new windfall tax in the offing for oil and mining corporations.

The passing of any of these proposals would rate as historic. In Colombia, as Bogotá think-tank economist María Fernanda Valdés observes, “we have never had a reform that was focused on making the people who have the most pay.”

Petro’s proposals now have the attention of the U.S. business press, and ominous-sounding headlines have begun to appear. “Taxes to Soar 200% for Rich Colombians in Bill Inspired by Thomas Piketty,” a Bloomberg report earlier this week announced, throwing in a reference to the French economist who has become the world’s foremost proponent of taxing grand private fortune.

Petro’s tax package would indeed up the taxes Colombia’s richest annually pay by that 200 percent — triple their tax bill, in effect. But that 200 percent increase says more about how little Colombia’s rich now pay in taxes than the radicalism of what Petro is proposing.

By mid-20th-century U.S. standards, the tax reforms Petro is proposing remain decidedly modest. No deep pocket in Colombia will pay over 39 percent of any dollar in income under the Petro proposals. In the United States, the tax rate on income over $200,000 — the equivalent of about $3.4 million today — hit 94 percent in 1944, and the nation’s top tax rate would keep hovering around 90 percent over the next two decades.

Those mid-century U.S. top marginal tax rates, note economists Emmanuel Saez and Gabriel Zucman, served “to constrain the immoderate, and especially unmerited, accumulation of riches.” In the decades right after World War II, they add, the United States “came as close as any democratic country” ever has “to imposing a legal maximum income.” The nation’s pretax income inequality “shrank dramatically.”

And postwar Japan, where U.S. occupiers put in place an 85-percent top tax rate, saw a similar story. Between 1950 and 1982, Saez and Zucman detail, “Japan grew at one of the fastest rates ever recorded,” in “one of the most striking economic success stories of all time.”

In the United States, the 1980 election of Ronald Reagan ended the era of high tax rates on high incomes. America’s richest, even before taking loopholes into account, today pay taxes at well below half the top rate in effect throughout the 1950s. Colombia’s current low tax rates on high incomes essentially mirror the low top tax rates on high incomes in the United States.

Gustavo Petro and his average-income Colombian supporters have now taken an important first step toward undoing Ronald Reagan’s hemispheric legacy. Their struggle ahead will be difficult and draining. Wish them luck.

This content originally appeared on CounterPunch.org and was authored by Sam Pizzigati.

Print Share Comment Cite Upload Translate Updates

Leave a Reply Cancel reply