Progressive taxation in the face of inflation and instability: lessons from Argentina

Gabriel Zucman's article in this symposium sets out an agenda for how international cooperation can overcome barriers to progressive taxation and barriers to the taxation of wealth. Argentina has been at the forefront of developments in international tax cooperation. It has been one of the global minimum tax's strongest proponents, and has pushed for it to go even further by increasing the minimum rate to 21 per cent or 25 per cent. Argentina has also made use of automatic exchange of information (AEOI) to detect offshore tax evasion, signing AEOI agreements with almost 100 countries. AEOI has had modest results for Argentina. Zucman's article notes that offshore real estate is exempted under AEOI, but offshore currency holdings – which are an important asset class for wealthy Argentinians – are also poorly reported.Whilst international cooperation is important, it is not the only barrier that needs to be overcome to tax the wealthy. Argentina presents a case study in how a progressive tax system can unravel in the face of high and volatile inflation, and how large swings in the tax rate due to political polarisation can limit the effectiveness of tax policy. This case study will be important for other developing and developed countries which are also often experiencing the high levels of inflation and political polarisation that Argentina has struggled with for decades.Argentina is one of the few countries to already have a comprehensive wealth tax as advocated for by Zucman.1 The wealth tax is intended to be highly progressive, but high and volatile inflation, ranging from 20 to 40 per cent in the last 15 years, has at times brought many more people into the purview of the tax than initially intended. Figure 1 shows that the threshold to start paying wealth tax fell from 15 times GDP per capita in 2007 to 2 times GDP per capita in 2015, leading to the share of wealth tax payers increasing from 0.5 per cent to 1.9 per cent of the total population. Between 2016 and 2020, the wealth tax threshold was periodically updated, and from 2021 it was indexed to the consumer price index (CPI). This has not entirely fixed the problem, as official estimates of property values, which are a major component of the wealth tax base, are not regularly updated in Argentina. As property price growth tends to be higher than the CPI rate of inflation, a lack of revaluation means that the wealth tax falls on an ever-decreasing share of true wealth.