{
  "title": "A COVID-19 Recovery Contribution",
  "publication": "IMF Blog, April 16, 2021",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2021/04/16/a-covid-19-recovery-contribution",
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  "summary": "Survey evidence from a recent survey of 2,500 US residents suggests the pandemic and its adverse economic consequences may lead to more favorable opinions of progressive taxation.",
  "sections": [
    {
      "heading": "Growing support for progressive taxation",
      "content": "- Survey evidence from a recent survey of 2,500 US residents suggests the pandemic and its adverse economic consequences may lead to more favorable opinions of progressive taxation.\n- Definition preserved from source: \"A tax is progressive if the tax liability, as a share of a person’s income, rises with income.\"\n- Key survey result: respondents who have experienced serious illness or job loss as a result of COVID-19—or personally know someone who has—favor progressive taxation to a greater extent than others in the sample, by a wide margin (19 percentage points).\n- Robustness: results hold in regressions controlling for demographic factors, socioeconomic variables, and preferences for various categories of spending (education, health, environment, police, military, and border protection).\n- Caveats highlighted in the source:\n  - Results based on surveys must be interpreted with caution.\n  - Uncertainty about how strongly held such views will be—or how long they will last.\n  - Other factors may simultaneously be causing a shift in attitudes (for example, past epidemics have been followed by weaker trust in government)."
    },
    {
      "heading": "Survey scope and questions",
      "content": "- The survey solicited views for and against:\n  - Increasing taxation as a way of financing the economic recovery as well as additional expenditures made necessary by the pandemic;\n  - Introducing a temporary tax explicitly linked to this goal; and\n  - Permanently increasing the degree of progressivity of taxation (with variations such as increasing taxation on people with incomes above average, only the rich, multinational corporations, etc.)"
    },
    {
      "heading": "Fostering an inclusive recovery — proposed contribution types",
      "content": "- COVID-19 recovery contributions (distinct from a \"wealth tax\" targeting households’ net assets) levied on the better-off could take forms such as:\n  - Surcharges on personal income taxes.\n  - Taxes on \"excess profits\" of businesses prospering during or after the crisis.\n- Rationale: those who can afford to pay more—individuals with high incomes or businesses with extraordinary profits—should make a greater contribution from their earnings to help meet extraordinary financing needs and promote social cohesion.\n- Historical precedents for temporary surcharges on personal income taxes:\n  - Germany implemented one in 1991 in the wake of reunification.\n  - Australia implemented one in 2011 following damaging floods in Queensland.\n  - Japan implemented one in 2013 after the Tohoku earthquake.\n  - Such a surtax is typically a simple surcharge on the personal income tax, strengthening the progressivity of the underlying tax and being easy to put in place.\n  - In countries where the existing tax is not very progressive, the source stresses the importance of designing the surtax in a progressive manner.\n- Historical precedents for excess profit taxes:\n  - Used in the United States, the United Kingdom, and other countries during and after the two world wars, raising considerable amounts of money.\n  - To avoid negative impacts on investment and growth, these taxes were levied only on estimated economic rents—the part of profits that exceed a normal return required to make an activity worthwhile."
    },
    {
      "heading": "Complementary international reform",
      "content": "- The source advocates for an agreement to reform international corporate taxation to:\n  - Better reach economic rents of highly profitable multinationals.\n  - Limit mutually damaging tax competition.\n  - Help increase revenues in a progressive manner in a global economy increasingly shaped by digitalization and automation."
    },
    {
      "heading": "Policy recommendations and considerations",
      "content": "- Policymakers could consider introducing COVID-19 recovery contributions to raise resources needed for an inclusive recovery.\n- Design principles emphasized:\n  - Target contributions on those who can best afford to pay (high‑income individuals and firms with extraordinary profits).\n  - Ensure surtaxes are designed to strengthen progressivity, especially where underlying taxes are not very progressive.\n  - Levy excess profit taxes only on estimated economic rents to avoid harming investment and growth.\n  - Pursue international cooperation on corporate tax reform to capture rents of multinationals and reduce harmful tax competition.\n- Social and political considerations:\n  - The pandemic is a test of social solidarity, cohesion, and government effectiveness.\n  - Individuals harmed by the pandemic are likely to demand more redistributive policies; unmet demands could lead to disillusionment and loss of trust in government.\n  - Perceptions that governments favored rich individuals and corporations could risk political backlash or social unrest.\n  - Policymakers should ensure those most hurt do not feel left behind while fostering the economic recovery and safeguarding public finances.\n\nArticle authors: Vitor Gaspar, Michael Keen, Alexander Klemm, Paolo Mauro — April 16, 2021.\n\n---\n\n Content in this bundle\n\n- En Special Series on Covid 19 Tax Law Design Considerations When Implementing Taxing\n  - En Special Series on Covid 19 Tax Law Design Considerations When Implementing Taxing (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - En Special Series on Covid 19 Tax Law Design Considerations When Implementing Taxing (PDF){rel=\"external\" type=\"application/pdf\"}\n- en-special-series-on-covid19-recovery-contributions\n  - en-special-series-on-covid19-recovery-contributions (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - en-special-series-on-covid19-recovery-contributions (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Governments have taken steps\n- recent survey\n- historical precedent for temporary surcharges\n\nSource: https://www.imf.org/en/blogs/articles/2021/04/16/a-covid-19-recovery-contribution"
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    "Authors: Vitor Gaspar, Michael Keen, Alexander Klemm, Paolo Mauro",
    "Published: April 16, 2021",
    "Survey evidence from a recent survey of 2,500 US residents suggests the pandemic and its adverse economic consequences may lead to more favorable opinions of progressive taxation.",
    "Definition preserved from source: \"A tax is progressive if the tax liability, as a share of a person’s income, rises with income.\"",
    "Key survey result: respondents who have experienced serious illness or job loss as a result of COVID-19—or personally know someone who has—favor progressive taxation to a greater extent than others in the sample, by a wide margin (19 percentage points).",
    "Robustness: results hold in regressions controlling for demographic factors, socioeconomic variables, and preferences for various categories of spending (education, health, environment, police, military, and border protection).",
    "Caveats highlighted in the source:",
    "The survey solicited views for and against:",
    "COVID-19 recovery contributions (distinct from a \"wealth tax\" targeting households’ net assets) levied on the better-off could take forms such as:",
    "Rationale: those who can afford to pay more—individuals with high incomes or businesses with extraordinary profits—should make a greater contribution from their earnings to help meet extraordinary financing needs and promote social cohesion.",
    "Historical precedents for temporary surcharges on personal income taxes:",
    "Historical precedents for excess profit taxes:",
    "The source advocates for an agreement to reform international corporate taxation to:",
    "Policymakers could consider introducing COVID-19 recovery contributions to raise resources needed for an inclusive recovery.",
    "Design principles emphasized:",
    "Social and political considerations:",
    "**En Special Series on Covid 19 Tax Law Design Considerations When Implementing Taxing**",
    "**en-special-series-on-covid19-recovery-contributions**",
    "[Governments have taken steps](https://www.imf.org/en/Publications/FM/Issues/2021/01/20/fiscal-monitor-update-january-2021)",
    "[recent survey](https://www.imf.org/en/Publications/WP/Issues/2021/02/06/Pandemic-and-Progressivity-50030)",
    "[historical precedent for temporary surcharges](https://www.imf.org/en/Publications/WP/Issues/2020/12/04/Tax-Policy-and-Inclusive-Growth-49902)"
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