## A COVID-19 Recovery Contribution _IMF Blog, April 16, 2021_ ## Source details **Canonical URL:** [A COVID-19 Recovery Contribution](https://www.imf.org/en/blogs/articles/2021/04/16/a-covid-19-recovery-contribution) ## Other formats - [Markdown version](/en/blogs/articles/2021/04/16/a-covid-19-recovery-contribution/index.md) - [Structured JSON version](/en/blogs/articles/2021/04/16/a-covid-19-recovery-contribution/index.json) - [Bundle manifest](/en/blogs/articles/2021/04/16/a-covid-19-recovery-contribution/bundle-manifest.json) ## Bibliographic details - Authors: Vitor Gaspar, Michael Keen, Alexander Klemm, Paolo Mauro - Published: April 16, 2021 --- ### Growing support for progressive taxation - 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: - Results based on surveys must be interpreted with caution. - Uncertainty about how strongly held such views will be—or how long they will last. - Other factors may simultaneously be causing a shift in attitudes (for example, past epidemics have been followed by weaker trust in government). ### Survey scope and questions - The survey solicited views for and against: - Increasing taxation as a way of financing the economic recovery as well as additional expenditures made necessary by the pandemic; - Introducing a temporary tax explicitly linked to this goal; and - 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.) ### Fostering an inclusive recovery — proposed contribution types - COVID-19 recovery contributions (distinct from a "wealth tax" targeting households’ net assets) levied on the better-off could take forms such as: - Surcharges on personal income taxes. - Taxes on "excess profits" of businesses prospering during or after the crisis. - 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: - Germany implemented one in 1991 in the wake of reunification. - Australia implemented one in 2011 following damaging floods in Queensland. - Japan implemented one in 2013 after the Tohoku earthquake. - 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. - In countries where the existing tax is not very progressive, the source stresses the importance of designing the surtax in a progressive manner. - Historical precedents for excess profit taxes: - Used in the United States, the United Kingdom, and other countries during and after the two world wars, raising considerable amounts of money. - 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. ### Complementary international reform - The source advocates for an agreement to reform international corporate taxation to: - Better reach economic rents of highly profitable multinationals. - Limit mutually damaging tax competition. - Help increase revenues in a progressive manner in a global economy increasingly shaped by digitalization and automation. ### Policy recommendations and considerations - Policymakers could consider introducing COVID-19 recovery contributions to raise resources needed for an inclusive recovery. - Design principles emphasized: - Target contributions on those who can best afford to pay (high‑income individuals and firms with extraordinary profits). - Ensure surtaxes are designed to strengthen progressivity, especially where underlying taxes are not very progressive. - Levy excess profit taxes only on estimated economic rents to avoid harming investment and growth. - Pursue international cooperation on corporate tax reform to capture rents of multinationals and reduce harmful tax competition. - Social and political considerations: - The pandemic is a test of social solidarity, cohesion, and government effectiveness. - Individuals harmed by the pandemic are likely to demand more redistributive policies; unmet demands could lead to disillusionment and loss of trust in government. - Perceptions that governments favored rich individuals and corporations could risk political backlash or social unrest. - Policymakers should ensure those most hurt do not feel left behind while fostering the economic recovery and safeguarding public finances. _Article authors: Vitor Gaspar, Michael Keen, Alexander Klemm, Paolo Mauro — April 16, 2021._ --- ## Content in this bundle - **En Special Series on Covid 19 Tax Law Design Considerations When Implementing Taxing** - [En Special Series on Covid 19 Tax Law Design Considerations When Implementing Taxing (Markdown version)](/-/media/files/publications/covid19-special-notes/en-special-series-on-covid-19-tax-law-design-considerations-when-implementing-taxing.pdf.md){rel="alternate" type="text/markdown"} - [En Special Series on Covid 19 Tax Law Design Considerations When Implementing Taxing (PDF)](/-/media/files/publications/covid19-special-notes/en-special-series-on-covid-19-tax-law-design-considerations-when-implementing-taxing.pdf){rel="external" type="application/pdf"} - **en-special-series-on-covid19-recovery-contributions** - [en-special-series-on-covid19-recovery-contributions (Markdown version)](/-/media/files/publications/covid19-special-notes/en-special-series-on-covid19-recovery-contributions.pdf.md){rel="alternate" type="text/markdown"} - [en-special-series-on-covid19-recovery-contributions (PDF)](/-/media/files/publications/covid19-special-notes/en-special-series-on-covid19-recovery-contributions.pdf){rel="external" type="application/pdf"} --- ## References - [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) _Source: https://www.imf.org/en/blogs/articles/2021/04/16/a-covid-19-recovery-contribution_