The world’s wealthiest nations are starting to raise their taxes. Many experts see this as inevitable, given the debt surge in the COVID pandemic. Some even see the rise in taxes as a good thing. Rising taxes can help close the wealth gaps that opened wider during the COVID-19 era.
The UK Started the Tax Rise Rolling Among Wealthiest Nations
The drive by the wealthiest nations to raise taxes started with the United Kingdom. The UK was last year’s biggest major borrow relative to GDP. It raised taxes on both workers and employers. The projected addition to the government’s coffers is at $17 billion a year.
Then, a global push initiated by the United States called for a 15% minimum tax for companies wherever they are. Around July this year, the Paris-based Organisation for Economic Cooperation and Development called for its members to adopt a global minimum corporate income tax of at least 15%.
This could yield around $150 billion in additional global tax revenues annually. Reportedly, 90% of the OECD, which means 130 wealthiest nations backed the proposal.
US On The Edge As Democrats Propose Higher Taxes For Wealthier Americans
In the US, markets are on the edge as Democrats proposed raising taxes on companies once again. They also want tax increases on Americans earning more than $400,000 a year.
Even at the proposal stage, many individuals are already balking at the idea. Meanwhile, Wall Street cut its forecasts for 2022 in anticipation of higher taxes for its investors.
Investment giant Goldman Sachs shared its belief that S&P 500 earnings-per-share would take a 5% hit. Earnings will go lower if corporate taxes exceed 25% (currently at 21%).
Some experts said that targeted tax hikes can actually help the market in the long run. These measures can help reduce inequality, which in turn can help markets in the long term.
In addition, it seems unlikely for the market to return to a more austere set of policies, which is what happened after the 2008/09 crisis.
Investors also noted that raising personal taxes among the wealthiest nations remains at modest levels. These won't necessarily affect economic growth as well as the equities markets.
UK Tax Increases Won’t Dent Individual Budgets
For example, the UK’s 1.25% National Insurance increase totals to a half percent of the GDP. The country’s dividend tax hike will equal an additional 100 pounds deduction for people earning 10,000 pounds a year in dividends. This is according to brokerage firm AJ Bell. Even debt-reduction measures in bond markets can end on a positive note.
Meanwhile, Kleinwort Hambros Chief Investment Officer Fahad Kamal sees no political appetite to slash pandemic-era spending programs. These programs “kept the lights on and backstopped everyone in the economy who needed help”.
However, “the fact that there is clearly some plan to address the huge increase in debt that we've had over the last year-and-a-half is a good thing,” he said of the UK tax hike.
Unwillingness To Keep Spending Programs Wild
The moves of the wealthiest countries to start paying down debts are becoming part of the rationale of stabilizing the negative outlook on a country’s credit rating.
Michele Napolitano, head of Fitch Ratings’ Western European Sovereigns said. “What we are seeing across Western Europe…shows there is not a willingness to keep public debt levels rising forever,” he shared during a recent conference.
Global debt, which includes government, household and corporate, and bank debt, sits at a record of nearly $300 trillion. This is according to the Institute of International Finance estimates.
During the second quarter of 2021, another $4.8 trillion worth of debt joined the growing bucket. In fact, according to a Janus Henderson study, global total debt reached $9.3 trillion in 2020.
Watch the MSNBC video where President Joe Biden argues for raising taxes of corporations, the wealthy:
What do you think about rising global taxes? Should the US go ahead with its own plans to increase taxes? Share your thoughts below.