Wealth tax: inequality solution for Latin America?

The income chasm between the rich and poor in Latin America, dramatically exacerbated by the coronavirus pandemic, has led to efforts to tax the wealthy — though the reception has been uneven across various countries.

The Latin American Network for Economic and Social Justice describes the region as “the most unequal in the world in terms of revenue distribution,” and is pushing for a “tax of large fortunes.”

The group — made up mostly of NGOs from 13 countries — projects that such taxes could $26.5 billion in the region. 

The richest one percent in the region owned 41 percent of the wealth, but only contributed 3.8 percent of the public purse, the group said in a study based on 2020 figures.

But while Argentina and Bolivia have announced taxes on the wealthy, these proposals have faced stiff resistance in countries such as Brazil or Chile.

Argentina’s center-left government of President Alberto Fernandez hopes to raise about $3 billion from taxing the richest 12,000 of Argentina’s 44 million inhabitants. 

In Bolivia, socialist President Luis Arce’s wealth tax will affect only 152 people with assets worth more than $4 million and will only bring in $14.3 million, making it little more than a symbolic measure.

But in Brazil, such proposals have been blocked in Congress despite a tax on large fortunes being written into the 1988 constitution. The law was never approved for fear of a capital flight.

Likewise, last year in Chile the left-wing opposition proposed a one-off tax on the “super-rich” amounting to 2.5 percent for those with fortunes over $22 million, which was expected to generate $6.5 billion to fight the coronavirus pandemic. 

But it failed to gain traction.

For Alejandro Rasteletti, an expert on fiscal policies at the Inter-American Development Bank, the discussion is “welcome” in a region where “fiscal policy has a very low impact on redistribution” of wealth.

Rasteletti has little faith in the wealth taxes working as “in practice it cannot generate much” because there are “different ways to avoid it.”

In Europe, wealth taxes have generated barely 0.2 percent of GDP — a “very small” amount, according to Rasteletti.

“In the IDB we’ve been pushing for a long time for a property tax … which is very difficult to evade (and) is absolutely progressive, because the richest have the biggest houses,” he added.

The Latin American and Caribbean region has been pummeled by the coronavirus pandemic, suffering more than 20 million cases and about 650,000 deaths.