In the future, we will (have to) talk about a #wealth tax to pay for the economic and fiscal fallout of #Covid19. Germany had a massive one after #WW2. Here is how it worked. /thread

After WW2, Germany faced many challenges. One was, how to compensate those who had lost wealth because of #war damage, #currency reform in 1948, expropriation or eviction from the East. /2

Currency reform had reduced financial assets considerably. Everyone could exchange 60 #Reichsmark into 60 D-Mark. Wages and rents were converted 1:1. But savings were devalued heavily. For example, 1000 RM to just 65 D-Mark. /3

Real assets such as #equity and real estate had maintained their value, just changed currency. So a #wealth tax was introduced, at first a preliminary one (‘Soforthilfeabgaben’). /4

Then came the famous (in Germany, anyway) ‘ #Lastenausgleich’ (burden equalisation, literally translated). Let’s just say: whatever @gabriel_zucman et al are proposing is a piece of cake by comparison. /5

The #Lastenausgleich imposed a 50% tax on wealth (yes, you read that right) above a personal allowance of 5.000 D-Mark (acc to @SBachTax, that was 130% of an average annual salary). /6

It also imposed a tax on #debtors who had gained from the currency reform’s devaluation of existing #Reichsmark debt (1:10). Basically, that gain had to be handed over to the government completely. /7

Those #taxes were payable over 30 years, and over time raised 53 billion D-Mark, which was roughly half of 1950 German GDP. But that was just 1/3 of what was required to compensate those who had lost. /8

Because that #compensation was substantial: up to wealth losses of 4,800 Reichsmark, the state would compensate in full (reaching 6.5% compensation of wealth losses above 1 million). /9

Of course, nominal German GDP grew spectacularly, the famous ‘ #Wirtschaftswunder’. From
100 bn D-Mark in 1950 to
340 bn in 1961 to
720 bn in 1970,
so the payable rates fell fast relative to income. /10

The effects on the wealth distribution in Germany was large, evidenced by this fascinating new study by @MSchularick et al. The levies mostly affected the rich, and lowered the top-1% share by 5.5%-points. /11 https://selten.institute/wp-content/uploads/2020/03/ECONtribute_The_Distribution_of_Wealth_eng_study.pdf

If you want to know more, follow @SBachTax, who knows the entirety of the German tax code over the last 100 years, and @MSchularick as the economic historian of (German) wealth. /end