A wealth tax is a bad way to pay off COVID-19 pandemic debts and probably would become permanent if introduced, Nobel Prize-winning economist Angus Deaton said.
Levies on high-earners would be “very difficult to implement” and give the wealthy “huge incentives to avoid it — and avoid it they will,” said Deaton, a Princeton University professor who is working on an official study of inequality in the UK.
The remarks brush against a growing number of politicians calling for the richest to shoulder more of the burden of the record borrowing taken on by governments to prop up economies hit by the pandemic.
The author of the book Deaths of Despair, which he cowrote with his wife, fellow economist Anne Case, said in an interview that a one-time wealth tax is “likely to turn into a permanent,” just as the income tax did.
NAPOLEONIC LEGACY
The UK introduced taxes on pay to fund the Napoleonic War and now it is one of the most prominent sources of revenue.
After a decade of austerity in the UK following the 2008-2009 financial crisis, Deaton also recommended against cuts to social services, saying that “the doomsayers, the deficit hawks, the austerity mavens” created a disaster by slashing funds for health and education.
He is leading a panel of experts in the UK probing how to reduce inequalities, where the young and those with less education increasingly fall behind the wealthy. The Institute for Fiscal Studies plans to publish its findings in 2023.
Deaton said the pandemic accentuated trends already unfolding in the US and the UK.
For one, education is becoming a more important variable in determining life outcome of people.
Also, unemployment is becoming less useful as an indicator of economic health.
While a recovery from recessions caused by the pandemic would create jobs, Deaton said many more are being left behind.
“In economic booms, it always picks up, but it never picks up as far as the previous peak,” Deaton said. “You get this endless downward ratchet. That’s something we really need to turn around, and it’s going to be hard.”
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