The socialist government of Argentina imposed a one-time wealth tax on its citizens this week, allegedly to offset the country’s crippling debt, which has worsened during the Chinese coronavirus pandemic.
Argentine citizens with assets of more than 200 million pesos ($2.3 million) must pay about three percent in taxes on assets declared within Argentina and over five percent on assets held abroad. The one-time special levy will apply to around 12,000 people in the South American country. Argentine senators passed the so-called “millionaires’ tax” by 42 votes to 26 in December.
Argentina, which has long struggled with immense debt, found its economy in dire straits last year due, in part, to the ongoing coronavirus pandemic. The country’s gross domestic product plummeted 11.8 percent in 2020, while Argentina’s poverty rate jumped from “35.4 percent in the first half of 2019 to 40.9 percent during the same period in 2020,” according to a recent report by the Washington Post.
The Argentine federal government responded to the spike in poverty levels by increasing expenditures on social programs and cash handouts to the poor during the pandemic. Argentina’s socialist President Alberto Fernández proposed the wealth tax bill last year as a means for the government to offset this increased spending. The levy’s supporters say it could generate up to $3.5 billion from the estimated 12,000 people in Argentina it would apply to.
“We’re talking about 0.02 percent of the population,” Carlos Heller, a member of the Chamber of Deputies from Buenos Aires who co-sponsored the wealth tax bill, told the Washington Post last week. “It’s a small contribution we’re asking from the richest Argentines.”
Opponents of the wealth tax have criticized it as “confiscatory.” The Argentine Rural Society has warned that the tax, which the government advertised as a “one-time special levy,” could become permanent in the future.
Argentina’s revenue service (AFIP) announced on February 26 that it plans to criminally prosecute a select number of the 12,000 people affected by the wealth tax for alleged tax evasion. The AFIP warned that it will “initiate criminal complaints” against an estimated 2,500 of the wealth tax’s payers for “aggravated [tax] evasion” and will file the cases on March 30.
Wealth taxes often have negative side effects that undermine their stated intent, such as driving holders of wealth out of a nation. A long-standing wealth tax in France forced an estimated 42,000 of the nation’s richest citizens to flee the country between 2000 and 2012. French President Emmanuel Macron repealed the wealth tax in 2018 after it was blamed for not only the wealth exodus, but also an increase in alleged incidents of tax evasion.
The wealth exodus caused by France’s “solidarity” tax cost the French government “twice as much revenue as the total ultimately yielded by the tax,” according to an analysis of the measure by French economist Eric Pichet.