For the traders and bankers who had a hyper-lucrative pandemic, the other shoe could be dropping soon.
Their pay packets represent an inviting target for government officials around the world conjuring a solution to the trillions of debt they added in the past year.
For instance: Now that President Joe Biden has passed his $1.9 trillion Covid-19 stimulus act, he is said to be planning to pay for his long-term economic program with the first major U.S. federal tax hike since 1993. Earlier this month, British Chancellor of the Exchequer Rishi Sunak rolled out a budget that will take taxes to their highest level since the 1960s (even though income taxes won’t go up).
“Are people concerned? Of course,” says Benedikte Malling Bech, director of North Star Law, a London-based boutique law firm that advises international and ultra-high-net-worth individuals. “Every government is going to have a financial struggle. What people are watching with great interest is how are different countries going to be able to cope with it.”
If keeping and attracting skilled workers and their employers are vital to a nation’s economic recovery, deciding how the bill is paid — and by whom — will be a delicate task for policy makers. As data calculated by PwC U.K., the U.K. arm of PricewaterhouseCoopers LLP, for Bloomberg News shows, some will have more room to maneuver than others.
Highly paid British workers, for instance, actually take home less pay than their counterparts in either Germany or Spain. That may jar with some Brexit supporters who’d hoped to create a low-tax “Singapore-on-Thames” following its break from the European Union.
“It would be difficult to have a very low personal tax rate in the U.K., to dismantle key, politically accepted parts of the state like pensions, universal health care, and good education,” says Iain McCluskey, a PwC partner who specializes in personal tax.
Looking to the other side of the Atlantic, the findings also illustrate one reason why Wall Streeters have been migrating from high-tax states like New York and California to lower-tax jurisdictions like Florida. A Florida resident earning 500,000 pounds ($695,250) a year gets to keep 354,426 pounds, compared with 299,474 pounds for a New Yorker and 312,690 pounds for a Californian.
PwC’s data do not take into account short-term programs that temporarily reduce taxes for expatriates. (France, for instance, has special income-tax exemptions for some foreign workers, intended to attract company directors and other global talent. The Netherlands also lets some expats avoid paying taxes on 30% of their salary.) According to McCluskey, these policies are politically contentious, particularly during recessions. And they are time limited. What’s more, the global trend has been towards shorter, more restrictive allowances.
While lockdowns are only slowly being lifted, tax proposals are already in the air. In addition to Biden’s plans, U.S. Senator Elizabeth Warren has introduced legislation calling for a wealth tax (though its passage seems unlikely).