Taxing Wealth: IMF Suggests Real Estate

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A serious study of the report will indicate, without a doubt, that it recommended to "increase property taxes, especially recurrent charges on residential properties. (Photo: Marwan Tahtah)

By: Firas Abou-Mosleh

Published Wednesday, November 20, 2013

Even the International Monetary Fund is beginning to speak about the risks entailed in the concentration of wealth, recommending increased taxes on higher income brackets and real estate holdings. Will Lebanon catch the bug?

This time, the "bogeyman" advocating the taxation of real estate was not the trade unions or leftist parties, but the International Monetary Fund (IMF) – a pillar of the neoliberal capitalist system.

The group’s 2013 Fiscal Monitor report, issued in October, was attacked by the wealthy, although the IMF's mention of imposing taxes on wealth and real estate was very brief and in the context of several recommendations to overcome the "sovereign debt" crisis.

Under a barrage of criticism, the IMF hastily issued a November 5 press release renouncing the recommendation, calling it an "alleged proposal."

"An analytical box in the recent edition of the Fiscal Monitor reviews a range of external discussions and experiences regarding a one-off capital levy. It also draws attention to the considerable downside risks of such a tax. It emphatically does not recommend a wealth tax," read the statement. “The analytical description of the issue in the Fiscal Monitor should not be misconstrued as an IMF policy proposal, which does not exist.”

In an article for Forbes magazine titled "The International Monetary Fund Lays The Groundwork For Global Wealth Confiscation," author Bill Frezza warns of the "wholesale robbery" of the property of all who enjoy a positive net wealth or retirement savings.

But did the IMF report really recommend a tax on wealth? Did the IMF management lie when it denied the inclusion of such a recommendation?

A serious study of the report will indicate, without a doubt, that it recommended to "increase property taxes, especially recurrent charges on residential properties." The recommendation to impose a "property" tax was based on an analysis of "high debt ratios amid persistently low

growth in advanced economies and emerging fragilities in the developing world."

The report called for fiscal adjustments through raising the efficiency of expenditures, strengthening local taxation, and growth in opportunities at the same time. It described current fiscal adjustment policies as being based on immediate needs, not on "a desire to build stronger

and fairer tax systems, and they may be storing up problems for the longer term."

"Scope seems to exist in many advanced economies to raise more revenue from the top of the income distribution (and in some cases meet a nontrivial share of adjustment needs), if so desired," the report indicates. "And there is a strong case in most countries, advanced or developing, for raising substantially more from property taxes (though this is best done when property markets are more resilient). In principle, taxes on wealth also offer significant revenue potential at relatively low efficiency costs."

"Their past performance is far from encouraging," the report states, "but this could change as increased public interest and stepped-up international cooperation build support and reduce evasion opportunities."

The report also indicates that studies have shown taxes on corporate profits to have the biggest negative impact, followed by taxes on worker wages and consumer taxes. Taxes on real estate have the least impact, it states.

The IMF experts' recommendation comes against the backdrop of ongoing debate in international forums regarding widening income disparities, leading to the "spectacular increase in the income share of the top 1 percent in particular."

This reality led to renewed interest in tax collection from the top of the income pyramid, especially after the global economic crisis beginning in 2008.

The report also indicates that "household wealth is very unequally distributed – even more so than income: In advanced economies, the top 10 percent own, on average, more than half of the wealth (up to 75 percent in the United States).”

In Europe, for example, recurrent taxes on wealth declined over the past 15 years, but this direction could be changing. Both Iceland and Spain brought back this tax during the economic crisis and several other countries are debating its reintroduction.

It is now relevant to open a serious debate on local tax reforms. Taxes on the highest income bracket in Lebanon are some of the lowest globally and the same goes for taxes on corporations and profits. However, treasury bills, profits on the stock market, and real estate speculation are not taxes, for example.

At the same time, 80 percent of tax revenue in Lebanon comes from indirect taxes, whose actual burden falls on medium- and limited-income brackets. Around one-third of treasury expenses are used for debt servicing. This means that a very narrow segment of treasury bill-holders make tremendous gains from rent and are tax-exempt.

Does the recommendation by IMF experts to impose taxes on wealth and profits from real estate make them into organs for "socialist propaganda," like some Lebanese pundits are saying?

This article is an edited translation from the Arabic Edition.

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