The design of Petro’s wealth tax avoids these pitfalls by targeting the people who sit at the very top of the wealth distribution. Its application begins to affect individuals with a net worth of at least $600,000 USD. This is one hundred and twenty-three times greater than the median wealth per adult in Colombia and represents less than one percent of all people in the country.
The annual wealth tax of the reform bill has three marginal tax rates: The first is an annual tax of 0.5 percent on wealth over $600,000 USD; the second is a 1 percent annual tax on wealth over $1 million USD; and the third is a 1.5 percent annual tax on wealth over $2 million USD. This last bracket, however, is temporary and will expire at the end of 2026. According to the government’s own estimate, they expect to collectapproximately $319 million USD in revenue after the first year of implementation.
One of the challenges for the Petro administration is to curb the activities of the wealth defense industry and their use of tax shelters to hide the assets of the most economically privileged. Colombia’s Director of the National Directorate of Taxes and Customs estimates that $16 billion USD worth of tax revenue is lost each year to tax evasion, $6.9 billion of which comes from individual evaders. The reform bill will empower the state to levy fines and mete out jail sentences to repeat evaders to combat this phenomenon.
This helps explain why the Colombian state is underestimating the amount of revenue it could collect from a wealth tax. An updated analysis by the Institute for Policy Studies – taking into account the new wealth tax rates presented in the reform bill – demonstrates that the state could raise more than $1.4 billion USD in revenue if implemented today on the country’s 4,700+ richest.
As economist Germán Machado commented to Argentine newspaper Infobae, a successful campaign against tax evasion could effectively double the total revenue the reform bill expects to collect.
The tax reform bill generated lively public debates. Some critics aimed at the utility of a tax on sugary drinks and ultra-processed foods while others lamented the fact that the reform bill did not represent a structural change in the tax code that expanded the country’s tax base.
The Colombian opposition – led by el Centro Democrático – attempted to mobilize popular resistance to the bill, but failed to generate much enthusiasm. A march was organized in late-September, but turnout was modest at best. And the public simply did not buy into the misleading messaging campaigns that attempted to collude the top one percent of income earners with the middle-class.
A recent poll demonstrated broad public support for the tax reform bill. 65 percent of those surveyed approve of it. This very much signals a new era of politics where austerity is rejected in favor of more economic democracy, one that translates into more opportunities and less wealth concentration.
We are exiting the era of Hayek and Friedman and entering the epoch of Piketty and Mazzucato. The Colombian people want to tax the rich, and we should too.
This content originally appeared on CounterPunch.org and was authored by Omar Ocampo.