Covid19, who should pay the bill?

By the end of 2019, our country already has been struggling to repay a soaring public debt (900 billions of dirhams) and balance a huge deficit budget (47 billions of dirhams), after years of low economic growth. Then the pandemic hit.

Now, the challenge is even bigger. More money is unexpectedly being spent to save lives and keep the economy afloat, while very limited resources could be raised from suffering businesses and consumers. So, how to pay the bill?

Many analysts and politicians, few old and more new liberals, don't see any crossed red lines on the debt level and claim a lifetime opportunity for social programs. They argue that, if interest rates remain low, even this staggering level is "acceptable" and won't crowd out private borrowing too much.

Few other officials, less visible but dyed-in-the-wool conservatives, think this debt still has to be repaid; it is austerity time and bad days of old times are ahead of us.

Politics aside, it is good time to look for solutions by recalling economics basics, by thinking (again!) about real issues, income distribution and wealth concentration.

The first rule in rebooting the economy, when small & medium businesses and consumers are suffering, is that no generalized tax hikes should be enacted until the economy returns to something resembling normal—probably in 2021 or beyond. Environmental and luxury-items taxes, however, should get a harder look, now!

Second, one the monetary analysis, it is worth reminding (solid studies by Nobel prize winners!) that changes in the interest rate affect the economy mainly through the real estate market (this rate matters a lot when considering to take out a mortgage to buy a house that will stand for many decades).

However, it is hard to see any direct effect on businesses decisions, especially on short lived investments. These decisions, instead, are more driven by perceptions about market demand.

Third, big companies put their jobs creation forward to lobby against taxes hikes. Their contribution aside (still, to be checked!), there aren't many business investments that will be worth doing with a 30% profits tax, but weren’t worth doing at 35% (specially when a substantial fraction of profits represents rewards to monopoly power, not returns on investment.)

The same logic applies to high income individuals who benefit from monopoly rents. If you take from one of them who makes 1 million a thousand, he’ll barely notice it (but if you give the same amount to a low-income employee with an annual income of 30.000, it will make a big difference to his life).

Forth, concentration of wealth is growing (no need to read Thomas Piketty to prove it; you're looking at it!). One could suggest that it is time to bring the wealth tax back on the table, at least a one-time levy on existing wealth.

One proposal would impose a progressive tax of a few percent annual tax on an individual net worth in excess of few dozen millions, and an additional percent on wealth in excess of hundreds of millions.

Wouldn’t it hurt incentives? Probably not much. Good economics, though, is not always good politics.