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Covid Tax Response Should Seek Equity, Fairness, Economists Say

Oct. 13, 2020, 5:25 PM

Governments tackling the economic effects of the coronavirus should pursue tax policies that spread the burden of the crisis, but refrain from making deep structural reforms, economists said at a world tax summit Tuesday.

The conditions of the pandemic are like those during the Second World War, when states imposed excess profits taxes on companies and raised the marginal tax rate on the wealthy to make sure the impacts weren’t uneven, economist Vito Tanzi said at the TaxCOOP 2020 World Tax Summit in Montreal.

“The taxes should try to bring about more equity in the economy,” Tanzi said, speaking by video during the webcast conference.

Tanzi recommended officials consider a wealth tax or a transaction tax, also known as a Tobin tax, because of how well stock markets are performing and the benefits that provides for the rich.

“They would not even really be felt,” he said.

But Tanzi, known among other things for the Tanzi effect—roughly, a situation of high inflation that results in lower tax collection—cautioned against making major reforms to tax policy during the recovery and said anything meant to affect the long-term trajectory of the economy should be undertaken later.

Conditional Support

Tanzi’s comments echoed those of author and professor Mariana Mazzucato, who applauded governments that have conditioned economic recovery support on paying domestic taxes.

Firms that stand to gain from the pandemic, like major pharmaceutical companies, are beneficiaries of government investments in research, and the public sector needs to ensure its fair share, Mazzucato, chair of Economics of Innovation and Public Value at University College London, said by video.

Arthur Laffer, who was an economic adviser to former President Ronald Reagan, said officials should go in the other direction, citing the current U.S. administration and Reagan as the most adept managers of the public purse during a crisis because of the tax cuts they have made. Laffer also advised President Donald Trump during his 2016 campaign.

The $2.2 trillion U.S. relief package known as the CARES Act, despite having some good elements, was an overreaction that has kept some already insolvent firms afloat, Laffer, known for having described the Laffer curve in economics, said by video.

“That was a panicked response that went way, way, way too far,” Laffer said.

To contact the reporter on this story: James Munson at correspondents@bloomberglaw.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; Vandana Mathur at vmathur@bloombergtax.com

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