As societies exit from COVID and the associated economic crisis, two wealth-related problems are likely to emerge. First, high debt may divert public spending into debt servicing costs, away from other and more pressing priorities. This is a one-off problem, the solution to which could involve a one-off levy on net-wealth to lower public sector debt to pre-crisis levels. Comparable levies were adopted by France and Germany in the aftermath of WWII.

Second, the concentration of purchasing power among wealthy households (with low marginal propensities to consume) may be a permanent drag on aggregate demand. This problem is well-known from the aftermath of the Great Financial Crisis and one of the causes of secularly low interest rates. It also has further systemic knock-on effects:

• Low domestic demand pushes governments to rely on net exports to secure high employment at home. As with any beggar-thy-neighbour policy, this solution creates acrimony when adopted by a few, and fails when adopted by all.
• As export-led strategies lead to longer, more intricate supply chains and financial linkages, they render societies more vulnerable to COVID-style shocks.
• Politically, through a variety of causal mechanisms high wealth inequality undermines political equality, which in turn erodes trust in government. This further reduces state and social capacity to respond effectively to disruptions like COVID.

Aggregate demand imbalances can be addressed through a variety of policies, including non-inflationary money creation. However, since large fortunes tend to earn above-average rates of return, all the above problems are likely to reemerge and amplify over time unless above-average rates of return on large fortunes are counteracted via a wealth tax.

To address these problems, an annual tax on net wealth could be adopted, with a progressive schedule of single-digits tax rates, possibly rising to low double-digits at very high net wealth levels, e.g. above €1 billion. The tax base would consist of all marketable assets, including real estate and financial assets, and could be assessed at the European level to reduce evasion. Since the aim is not to generate revenue, but to ensure that purchasing power is distributed in an economically and politically sustainable way, other taxes on wealth (in particular real estate taxes and potentially inheritance taxes) could be folded into it and abolished.

This proposal is closely linked to Restoring the Tax Base.