On Monday, Andres Escobar, Colombia’s deputy finance minister, told reporters in Bogota that the country plans to impose a 2.25 percent annual wealth tax on fortunes greater than $4 million, with lower rates on all wealth above $385,000. The move was inspired by the work of the economist and heartthrob Thomas Piketty, who argues that returns on wealth should be kept below broader economic growth.
Unfortunately, what Colombia is doing is not exactly what Piketty proposed. He wants a tax on wealth all right, but he suggests that countries get together and all impose one at the same time. In a paper with Emmanuel Saez last year (PDF), he pointed out that, with capital moving freely across borders, tax rates on wealth and investment income have been dropping even in Scandinavian countries with “strong egalitarian values,” like Sweden. If capital can leave, it’s hard for any single country to do something about it.
