International Monetary Fund: Here's the Fix for Sovereign Debt—Pick Savers' Pockets
Lest you think this a nutty anarcho-libertarian conspiracy fantasy, let me begin by linking to the source document on the International Monetary Fund (IMF) Web site:
Scrolling down to page 59 (page numbers in PDFs are somewhat labile, but it should be around there), we find in “Box 6”:
Box 6. A One-Off Capital Levy?
The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”— a one-off tax on private wealth—as an exceptional measure to restore debt sustainability.¹ The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair). There have been illustrious supporters, including Pigou, Ricardo, Schumpeter, and—until he changed his mind—Keynes. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away (these, in turn, are a particular form of wealth tax—on bondholders—that also falls on nonresidents).
There is a surprisingly large amount of experience to draw on, as such levies were widely adopted in Europe after World War I and in Germany and Japan after World War II. Reviewed in Eichengreen (1990), this experience suggests that more notable than any loss of credibility was a simple failure to achieve debt reduction, largely because the delay in introduction gave space for extensive avoidance and capital flight—in turn spurring inflation.
The tax rates needed to bring down public debt to precrisis levels, moreover, are sizable: reducing debt ratios to end-2007 levels would require (for a sample of 15 euro area countries) a tax rate of about 10 percent on households with positive net wealth.²
1 As for instance in Bach (2012).
2 IMF staff calculation using the Eurosystem’s Household Finance and Consumption Survey (Household Finance and Consumption Network, 2013); unweighted average.
So, target those who have saved for an uncertain future, their children's education, and retirement, spring it on them “before avoidance is possible” and persuade the rubes “it will never be repeated” as you pick their pockets.
Think about this as you scrimp to save or make contributions to a retirement account which the locusts may plunder when investors cease to buy their bonds.