The Spanish election results are moving the country away from pro-growth tax reforms while launching the government’s tax agenda, and the agenda of the Spanish presidency of the Council of the European Union, into uncertainty.
For many Italian banks, there hasn’t been a significant “windfall” to tax. The profit margins of Italian banks have been lower compared to other industries for the past two decades.
Spain should follow the examples of Italy and the UK and enact tax reforms that have the potential to stimulate economic activity by supporting private investment while increasing its international tax competitiveness.
When it comes to providing economic relief to those in need, wartime energy security, and principled tax policy, the EU can do all three. But a windfall profits tax is not the policy to achieve these goals.
History is clear. Lowering budget deficits via spending restraint frees resources for additional private output and jobs. Lowering them by raising taxes on business investment and labor services makes it harder to dis-inflate without a recession.
California is no stranger to high taxes, and the state has enough going for it that its economy can withstand higher tax burdens than would be viable in other parts of the country. But there’s always a tipping point.
In response to high oil prices, Sen. Wyden has proposed raising taxes on oil and gas companies in three ways. His “Taxing Big Oil Profiteers Act” would create an additional 21 percent tax on so-called excess profits earned over 10 percent of revenues of oil companies with annual revenues over $1 billion; levy a tax on stock buybacks; and remove last-in, first-out (LIFO) tax treatment of inventory accounting.
As oil prices skyrocket, a windfall profits tax targeted at oil company profits could punish domestic production and increase reliance on imports.
To help countries face the pandemic-related financing needs while reducing inequality, the International Monetary Fund (IMF) has released a series of policy recommendations based on a temporary COVID-19 tax, levied on high incomes or wealth.
Today’s advocates would do well to study the history of excess profits taxes before overselling these taxes as a solution to the COVID-19 crisis.