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To tax or not to tax!

There was no question here about adding a more sarcastic title than usual, just for the fun of it. But come on! While we are experiencing a full-blown heat wave in Europe, a letter published online in the United States turned up the heat this week. This letter from a group of billionaires says they want “to be taxed more”.

This is not the first time we’ve heard this, but let’s admit that it deserves consideration. “Tax us more.” That is, in short, the message from a small group of American billionaires, including businessman George Soros, Facebook co-founder Chris Hughes and heirs to the Hyatt and Disney empires, to the Presidential candidates. To summarize, in a letter published online today, this club of very rich Americans supports the idea of a wealth tax. “We are writing to call on all candidates for President, whether they are Republicans or Democrats, to support a moderate wealth tax on the fortunes of the richest 1/10 of the richest 1% of Americans-on us,” they said. The wealth of this 0.1% of the population is almost as great as that of 90% of the American population. “The next dollar of new tax revenue should come from the most financially fortunate, not from middle-income or lower-income Americans,” added the 18 signatories from 11 families. Several Democratic primary candidates, including Pete Buttigieg, the mayor of South Bend, Indiana, and Representative Beto O’Rourke, already support the idea, as reported by the daily Le Figaro.

But the letter highlights  Senator Elizabeth Warren’s specific proposal to tax households with more than $50 million in assets, which corresponds to around 75,000 families. According to estimates, that could bring in $2,750 billion over 10 years. “America has the moral, ethical and economic responsibility to tax our wealth more,” wrote the signatories. The money collected from this additional tax could “help address the climate crisis, improve the economy, improve health outcomes, fairly create opportunity, and strengthen our democratic freedoms” by slowing down the growth of inequality, they said. So far, Donald Trump has not reacted‒no tweet, nothing that would suggest that this measure will be taken, one year away from the presidential election.

In Europe, there is an entirely different climate in these heated and impassioned times. The daily Les Echos says that a countdown has begun. It's all about equivalence. Next Tuesday, if there is no agreement between Brussels and Bern, the Swiss stock exchange operators will lose the benefit of their system of equivalence. In other words, investors located in the European Union will not be able to conduct transactions directly with the Zurich stock exchange and will have to go through European exchanges for quotes on Swiss securities. As Les Echos explained, “Bern does not intend to let Brussels impose an agreement on them, and has threatened to prohibit European stock exchange operators “from offering or facilitating trading of some Swiss company shares”. That’s one way to bring the transactions back to Switzerland. According to the Swiss finance minister, without this protection, trading volumes will plummet by 70% to 80%.

It’s yet another escalation in a conflict that has been simmering for years, and has come to a boil over the last 18 months. The European authorities want to replace some 120 bilateral treaties signed with Switzerland with an institutional framework agreement. But the Swiss are dragging their feet and asking for clarification.” And, “to accelerate the process”, adds Les Echos, “at the end of 2017, Europe granted their precious equivalence to Switzerland for just one year , a period that was ultimately extended by six months. This system, which recognises that the level of local regulation provides the same guarantees as within the EU, allows financial participants to invest freely in both Switzerland and the EU.” The waiver expires 30 June and, this time, the Commission seems determined to use maximum leverage in its negotiation with Switzerland. If Switzerland had wanted to extend the system, it should have done it last Friday. “This is not a bluff,” insisted a European source. Nevertheless, it is technically possible to reach a new equivalence agreement by 30 June.

For the financial markets, the situation is worrying. The Zurich stock exchange is the fourth largest in terms of volume, behind London, Paris and Frankfurt. And it hosts some very large companies like Nestlé and Roche. As you might have gathered, this scorching week is pointing to financial heatstroke.

Christian Moguérou



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