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What Is a Solidarity Tax?
Solidarity tax is usually levied by a government to help provide funds for projects and initiatives that are aimed at unifying the public around one or more specific goals. Most often, the tax is calculated as a percentage of total income and is additional to personal or organizational income tax. In some cases, the solidarity tax is calculated according to personal and organizational income thresholds, but in others it might be a flat percentage or rate. Such taxes are usually controversial with the public, because often the tax is levied in an attempt to create funds to either offset a financial crisis or to finance projects that have no other realistic alternative, which may not garner full public support. Over the years, many countries have implemented or considered such a tax as a response to a diverse range of situations, usually to the dismay of the public.
Germany is often cited as one such nation to make use of the solidarity tax. In 1991, with the reunification of East and West Germany, the government needed to create a fund that could expedite reunification and provide capital for the newly integrated administration. Levying a solidarity tax at a flat rate of 7.5% on all personal incomes, regardless of the level of income, was the chosen solution. While at first presented to the public as a short-term measure, the tax was removed after a year, but then levied again in 1995 and dropped to a rate of 5.5% in 1998, continuing through 2011 and prompting legal challenges based on the constitution. With legal challenges yet to resolve the constitutional bases of the tax, it is due to stay on the books until 2019.
Similarly, other nations have either introduced or considered levying a solidarity tax to address social-financial concerns. In 2011, some countries falling under the umbrella of the European Union viewed such a tax as an opportunity for them to get out from under the crippling debt that saddled their economies. Unveiling the tax in its proposal to the World Bank and IMF regarding austerity measures, Greece proposed a solidarity tax, which it subsequently levied, requiring Greek taxpayers to remit up to 5% of their income, depending on their annual salary. This unsurprisingly resulted in riots in the streets, but the tax prevailed.
Italy as well has considered the option of implementing a solidarity tax in an attempt to gets its debt woes under control in 2011. Consideration for the tax in this case, however, was aimed specifically at the wealthy rather than all taxpayers in Italy. After deliberation on the overall impact of debt control, Italy changed course, however, and removed the potential tax from its austerity proposals to the World Bank and IMF.
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Discussion Comments
@Logicfest -- it is true that sales taxes don't sunset, but keep in mind that the voters and not the government make that decision. Temporary sales taxes are usually put in place for large, municipal projects such as libraries, roads or waste water treatment facilities. Once those improvements have been paid for, the government responsible for the sales tax might ask voters to extend the tax to pay for other improvements. It is up to the voters to decide whether to extend those taxes. One would think the same would be true of solidarity taxes.
Keep in mind, too, that it is not in the government's best interest to raise taxes too much because people start taking pains to avoid them. France, for example, has a solidarity tax on the wealthy and foreign tax shelters have popped up because there is a demand for them. What can we learn from that? At some point, high taxes defeat the very purpose for which they are put in place.
Finally, it is hard to imagine that solidarity taxes would take hold in the United States too much. We have temporary sales taxes and impact fees on new construction that raise money and do tend to irritate the public. Why put another form of taxation in place?
This article highlights one of the main problems with a solidarity tax. Those are sold as being temporary, but can wind up being in place permanently. As we've seen from the Germany example, a government isn't likely to put a tax in place and get rid of it later. Government's start relying too much on the additional income and tend to extend them.
Solidarity taxes aren't common in the United States (if, indeed, they are used at all), but we have seen something similar in the way of temporary sales taxes that are supposed to sunset after a certain date. Pointing out that similarity is important because we've seen governments not sunset those sales taxes, leading to a permanent tax. There is no reason to think the same thing wouldn't happen in the United States with solidarity taxes.
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