LONDON, July 2 (Reuters Breakingviews) - The war on Covid-19 has proved remarkably expensive. The U.S. federal deficit last year ran to $3.4 trillion. That’s nearly 95% of Washington’s total tax take. As the crisis eases, policymakers are thinking about how to foot the bill, as my Breakingviews colleagues expected they would during the height of the pandemic. Past wars have brought forth new taxes. It’s time to reconsider fresh sources of government revenue – levies which not only raise money but redress economic and social ailments.

So far, President Joe Biden’s administration has only proposed tinkering with the current tax system. The White House has called for the maximum tax rates on income, corporate and capital gains to rise (capital gains tax might also become payable on estates). UK Prime Minister Boris Johnson is considering a reduction in the tax benefits enjoyed by pensions. Given Britain’s poor savings record, a raid on retirement plans appears ill-advised. As for the proposed hike in U.S. income taxes, rich Americans are expert at avoiding this charge.

Investigative journalists at ProPublica have revealed that several of America’s richest citizens – including Jeff Bezos, Elon Musk, George Soros and Carl Icahn – didn’t pay federal income tax in some years. In 2015, some 14,000 U.S. taxpayers paid more income tax than Berkshire Hathaway (BRKa.N) boss Warren Buffett. The Sage of Omaha, who is currently worth around $100 billion, enjoys a relatively low income-tax bill because he seldom realises capital gains and Berkshire doesn’t pay a dividend.

Corporate America is equally adept minimising its tax liabilities. The five most valuable American companies – Microsoft (MSFT.O) , Apple (AAPL.O) , Facebook (FB.O) , Alphabet (GOOGL.O) and Amazon.com (AMZN.O) – pay 15% of their profit in taxes, nearly a third less than last year’s statutory U.S. corporate tax rate of 21%.

Income tax was first introduced in Great Britain in 1798 when the country was at war with revolutionary France. Though Covid-19 is a virus, not an army led by Napoleon Bonaparte, it was a battle nonetheless, whose costs will need to be paid for. Here are some possible new taxes to do the trick:

Wealth Tax: Billionaires might find it harder to avoid a wealth tax than income tax. Besides reducing inequality, an annual wealth levy, which already exists in some form in prosperous economies including Switzerland and Norway, could replace capital gains and the hugely unpopular estate tax. The richest 25 Americans, from Bezos to eBay (EBAY.O) founder Pierre Omidyar, are currently worth $1.8 trillion dollars, according to Forbes. A 2% tariff on their wealth would raise around $36 billion – many multiples of what they pay in income tax. Senators Bernie Sanders and Elizabeth Warren are keen exponents of a wealth tax. But critics claim it would discourage enterprise and hurt small businesses.

Leverage Tax: A couple of years ago, Martin Hutchinson, our former Breakingviews colleague, mooted a tax on corporate leverage. Hutchinson argued that leverage is a source of financial instability. In recent years, companies have taken advantage of easy money to get further and further into debt. A leverage tax would reduce debt-funded buybacks and other types of financial engineering. Instead of “de-equitising”, firms would have an incentive to replace debt with equity.

AT&T (T.N) is currently the most leveraged non-financial American corporation with total liabilities close to $350 billion. If those liabilities were taxed at 2%, the phone company would pay nearly $7 billion more. As an added benefit to shareholders, faced with such a bill AT&T’s management might have thought twice before embarking on the 2018 acquisition of Time Warner, which it’s now unwinding.

Monopoly Tax: As Adam Smith pointed out, a dynamic economy requires free competition. Yet, as Jonathan Tepper shows in his recent book, “The Myth of Capitalism”, the U.S. economy has become dominated by corporate behemoths. Research suggests that companies with dominant market positions are more profitable but tend to invest less.

It used to be the job of antitrust regulators to dismantle monopolies, but lately they have sat on their hands. A profits tax based on market share would do the job more efficiently while raising tons of cash. As Tepper writes: “If we have progressive income tax because the marginal utility of money is lower for the very wealthy why should we not tax corporations similarly?”

Facebook currently pays around 13% of its profit in taxes. If the social network giant’s tax rate was based on its global market share, Facebook’s corporate rate would increase by more than fivefold. Founder Mark Zuckerberg would cry foul, but society would benefit if the monopoly rents currently enjoyed by Facebook, Google and other tech giants went into the public purse.

Green Sales Tax: A key weakness of capitalism is that those responsible for damaging the environment often avoid paying up. The British-born economist and Nobel laureate Ronald Coase suggested long ago that the state should charge companies for “externalities”, such as pollution. An alternative approach would be to include environmental costs in a sales tax.

Such a tax would mimic the “sin taxes” already added to tobacco and petrol. Thus, diesel-powered cars would attract a higher sales tax than electric vehicles, and the tax on intensively reared beef would be higher than grass-fed beef. The level of the green sales tax could be linked to the amount of carbon dioxide emitted in production.

Since externalities are hard to measure such a tax would be administratively complex. Besides, there’s a danger that any new tax will have unforeseen consequences. When William of Orange introduced the Window Tax in 1696 to pay for Britain’s war with France, homeowners responded by bricking up their windows. After France introduced a wealth tax in the 1980s, thousands of millionaires fled the country. President Emmanuel Macron abolished the tax in 2017. There are also political pitfalls. Margaret Thatcher’s long premiership came to an end after the British public revolted against her introduction of a poll tax.

Political realities mean few if any of these proposed new taxes will see the light of day. Instead, politicians will resort to the oldest tax of all, a tax that requires neither legislation nor the assent of the people. Since ancient times, states have met the costs of war by debasing their currencies. Little has changed in the interim. Today, central banks are busy printing money to buy government debt. An inflation tax is in the offing. Even the canny Buffett will have trouble escaping its reach.

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