Solidarity Tax

The solidarity tax is a form of taxation levied by governments to generate money for particular aims often related to social or economic assistance to ways regions, populations or goals such as crisis recovery. Based in wealth redistribution philosophy, the solidarity tax usually targets upper income groups or companies — bringing revenues to public welfare projects, rebuilding efforts or underdeveloped areas. This kind of taxation is supposed to express solidarity in society, with those who are better positioned financially contributing to the well-being of others and less favoured or hit sectors and regions.

What are solidarity taxes used for and where do they come from?

Historically, solidarity taxes are not a new idea; the 20th century witnessed various nations implementing temporary levies to help meet urgent social demands. Solidarity taxes are usually implemented in situations of emergency or inequality, for example during wars, natural disasters or sharp economic crisis. This is the type of taxes that they can use to fund rebuilding efforts and relief or provide financial support during times of economic distress because it serves as a form of social cohesion with the masses taking some responsibility for the public good.

Solidarity taxes are not just an idea — they have actually been in practice to build a sense of community and mutual responsibility among taxpayers. Their goal is to remove certain percentages from more prosperous stakeholders and give portions of this wealth directly to those who are most in need, thereby gaining equality. Taxes are often progressive, hitting income recipients at the higher end of the scale harder than their low-earning counterparts, in order to decrease income inequality and increase social stability.

Solidarity Tax in Germany

A prominent example of such a solidarity tax is the German Solidaritätszuschlag (solidarity surcharge), created in 1991 after the reunification of East and West Germany. This key tax was intended to provide money for the economic development of ex-East Germany, which faced severe structural and economic issues after the Berlin Wall fell in 1989. At first, the surcharge was 7.5 and only applicable to natural personal income tax, corporation tax as well as a capital income Tax.

After reunification, billions of euros were wasted on roadbuilding programmes and jobs creation schemes in ex-East Germany states financed by the solidarity surcharge. Upgrades to roads, public transportation, education and health care facilities were carried out with the goal of reducing differences between the western and eastern parts of Germany.

The solidarity surcharge had been intended to be temporary but quickly became permanent over the subsequent three decades, with regular discussions about its continued justification and equity. VA in 2021 finally instituted a reform that exempts about 90% of taxpayers from the surcharge – likely due to public outcry against tax increases. Even so, the solidarity tax is still being levied on higher income groups and has now been an integral part of Germany's tax legislation for 30 years.

Solidarity Tax in France

The ISF, or Wealth Solidarity Tax, is part of a philosophy in France based around the concept of solidarity built into the tax system. Launched in 1989, the ISF taxed wealthy people with proceeds allocated to social programs and for reducing inequalities. The ISF was imposed on all the taxable global wealth of French citizens above a particular threshold, covering items such as property (real estate), investments and other valuables.

It was a wealth tax, which means the rate increases according to the value of assets and its objective is to redistribute wealth within French society. Money from the ISF went toward social programs, housing assistance and health care services as part of a broader commitment to economic equity. Supporters and opponents coalesced around the ISF; supporters said wealth needed to be transferred to address inequality and fund public goods, while critics blamed it for disinvestment and capital flight.

The ISF was recently (2018) replaced by the Impôt sur la Fortune Immobilière (IFI); a real estate wealth tax that charges only on property sector assets exceeding the threshold. The move aims at getting investors to channel their investment away from property and towards other assets, triggering economic growth. The replacement of ISF with IFI was contentious, as many argued it lessened the tax burden on the wealthy and undermined the spirit of solidarity. Nonetheless, the idea of a solidarity tax continues to loom large, especially in French fiscal policy and discourse.

Solidarity Tax in Greece

Following the acute financial crisis experienced in the late 2000s and early 2010s, Greece introduced a solidarity tax. The solidarity tax was to generate revenue for social support programs, as the country faced high public debt and austerity pressure from international creditors in 2012. Individual income was the basis of the Greek solidarity tax, with progressively higher rates for those who earn more.

The solidarity tax ended up being an integral part of the Greek economic recovery plan, which provided money for social programs, unemployment benefits and healthcare services to at-risk groups. But the tax also came under fire from parts of Greek society, especially in the middle and upper-income brackets that complained they were bearing more than their share of the load. It has been a lemon ever since in politics, striking a delicate act between raising taxes to pay down obligations versus ensuring they do not derail growth.

What are the Solidarity Taxes for COVID-19 Recovery

There is a renewed interest in solidarity taxes since the COVID-19 pandemic, with many governments around the world looking to raise revenue to help find economic solutions for mitigation and recovery. For example, some countries such as Argentina and Spain have imposed on a temporary basis solidarity taxes targeting wealthy individuals and corporates, to finance pandemic spending. They are designed to fund health systems, offer support to industries hurt by the pandemic and help populations hardest hit by the COVID-19 pandemic.

One-off taxes on wealth, such as the one introduced in Argentina in 2020 (a millionario, or millionaire tax, officially called the Extraordinary Solidarity Contribution to Help Moderate the Effects ofthe Pandemic), have been gaining popularity among governments worldwide. The tax charged all people who had more than a certain net worth and the money from this went to health care, small business and education programs. It brought in a significant amount of revenue for the state, but also faced criticism from people who thought it discouraged wealth creation and investment.

Likewise, Spain weighed a temporary solidarity tax on the rich to help pay for pandemic recovery steps, fueling similar debates about the obligation of high-net-worth individuals to help during emergencies. Reaction to the proposal was mixed, reflecting the enduring debate on the question of wealth redistribution and collective support in times of economic crisis.

Taxes in consideration of solidarity and wealth redistribution

The main purpose of solidarity taxes is to redistribute wealth. Solidarity taxes are intended to mitigate economic income and wealth divisions within a society by imposing higher tax rates on rich individuals and corporations. These taxes imply a sense of shared responsibility, wherein wealthier individuals are expected to contribute more actively toward the common good. Beyond financing targeted programs, the solidarity tax promotes social cohesion and a feeling of belonging among citizens.

While solidarity taxes answer some pressing questions, particularly in moments of crisis or large differences between various strata of society, it is questioned whether the taxes themselves will affect economic incentives and fairness. Opponents of such taxes claim they result in tax flight, disincentivise investment and are an undue burden on the affluent classes. Supporters, though, regard them as a kind of policy that guarantees everyone in society shares in economic growth and prosperity.

Future of Solidarity Taxes

International economic trends and social priorities are likely to determine the future of solidarity taxes. Solidarity taxes might be increasingly appealing to governments that are looking to fill the gap left by traditional revenue sources, as inequality, climate change and health crises do not stop at borders and hit all societies globally. In both their temporary and permanent forms, solidarity taxes enable an effective response to immediate social and economic challenges, while also serving as a concrete measure for collective responsibility.