Geopolitics offers little cause for celebration. There is no light in the tunnel and no bridge over the troubled waters. The West is compelled to rearm itself, and the will to do so is strong. While many structural and economic obstructions to change remain, there is less psychological resistance. The will is there all right, but what we also need is new forms of financing. One of the proposed solutions is joint EU debt, but it lacks widespread support. What about financing defence spending by wealth taxes? After all, property is something that needs to be secured and protected.
Taxing earned income or wealth?
On the geopolitical scene, there is a lot sabre-rattling from authoritarian governments. That is why the western democracies need to protect themselves. To a great extent, it is about the protection of property and continued trust in the rules-based system of government. It seems plausible to argue that in an authoritarian society, ownership is not simple and can also be arbitrary.
Which should we tax, earned income or wealth? A teacher, nurse or construction worker finds employment irrespective of whether they live under a democratic or authoritarian government. While the freedoms of opinion and expression are radically different under these systems, actual job security and pay may be the same.
When it comes to wealth, the situation is completely different. There is a lot of uncertainty about the way in which an authoritarian state treats private wealth and property. It is hard to even imagine the processes in which decision-making on private wealth would be based. Who may own? Whose property is left intact and who is deprived of it? How much property is permissible and when? Answers to these questions are just pure conjecture.
It seems doubtful that wealth would be preserved in a transition from a democratic to an authoritarian system. Hence, the threat to wealth is greater than to earned income. Hence, it is only logical to protect wealth and its continuity. To do so, it is important to invest in defence and rearmament. In some circles, the government is assigned to the role of a night watchman.
Can wealth be taxed?
The trend in recent decades has been for taxation to be based on different forms of income, VAT and environmental taxes. Many corrective taxes have undergone a major transformation as a result of the green transition and sudden changes in people’s consumption patterns. Hence, the tax system needs to be dynamic and evolving.
There are countries in which wealth is reported and taxed. Also, wealth can be taxed at several different levels. In the European context, potential tax collectors include the EU and central and local governments.
Wealth taxation is simple if it is uncomplicated, straightforward and sufficiently low. However, political decision-making always involves a risk of complexity. Often, decisions are compromises seasoned by the aspirations and proposals of a number of parties. The final outcome may be complex and lead to misguided optimization, disincentives and tax minimization. However, there are schemes that work successfully. A case in point is value added tax: it is used in several countries and it works. Another good example is property tax, which is widely used and very similar to a wealth tax. A third example is contributions levied on the banking sector, which were collected in the EU banking union based on own funds and riskiness.
In conclusion
Europe is investing heavily in rearmament. However, the obstacles are numerous, and at some point the financing of defence spending and rearmament may prove a stumbling block. If new, arguably justifiable sources of financing need to be found, asset protection levies or insurance premiums could be suitable candidates. You could also call it a tax, if you will.
Writer is VER's CEO Timo Löyttyniemi
