Opinion

Taxing the very rich

BREAKTHROUGH - Elfren S. Cruz - The Philippine Star

February 7, 2019 | 12:00am

The combined wealth of the world’s 26 richest individuals reached $1.4 trillion last year. This was the same amount as the total wealth of 3.8 billion poorest people in the world.

There are 2,208 multi-billionaires in the world – computed in US dollars. Their combined wealth is estimated to be growing $2.5 billion every day. The poorest 3.8 billion people in the world is seeing its net worth actually declining.

According to Oxfam, this report was prepared for use at the 2019 World Economic Forum in Davos, Switzerland. This is the annual gathering of the world’s economic and political elite. The report is meant to call attention to the growing gap between the rich and the poor. This growing income inequality has caused the rise of populism even in rich countries like the United States, France and the United Kingdom.

In the poorer countries, this growing income inequality has caused social tensions and has even led to the rise of authoritarian leaders who have promised to wage war on the “elite”. Unfortunately in Davos, the global elite chose Globalization as their theme. This seemed to be an attempt to save globalization which has been accused by populists of exacerbating the gap between the extremely rich and the poor. This should not have been surprising since, according to one observer, almost all of the 1,500 participants arrived in Davos in private planes. No one should have expected any empathy between the Davos elite and the poorest half of the world.

Tax the rich

One of the few exceptions to elite membership in Davos was Rutger Bregman, a Dutch historian and author of the book Utopia for Realists. He was a member of the Time magazine panel on equality. He later said that he was bewildered that no one was talking about raising taxes on the rich. On the panel, Bregman said:

“I hear people talking the language of participation, justice equality and transparency but almost no one raises the real issue of tax avoidance, right? And of the rich just not paying their fair share...It feels like I’m at a firefighters conference and no one is allowed to speak about water.”

He added that industry had to stop talking about philanthropy and start talking about taxes. He emphasized the issue by saying: “ That’s it. Taxes, taxes, taxes. All the rest is bull #@#@ in my opinion.” Bregman is also the writer who once said that “...most wealth is not created at the top, but merely devoured there.”

Oxfam has also recommended that nations tax wealth at fairer rates, raise rates on personal income tax and corporate taxes and eliminate tax avoidance by companies and the super rich. According to Matthew Spencer of Oxfam: “The massive fall in the number of people living in extreme poverty is one of the greatest achievements of the past quarter of a century but rising inequality is jeopardising further progress.

“The way our economies are organized means wealth is increasingly and unfairly concentrated among a privileged few while millions of people are barely subsisting. Women are dying for lack of decent maternity care and children are being denied an education that could be their route out of poverty. No one should be condemned to an earlier grave or a life of illiteracy simply because they were born poor.

It does not have to be this way. There is enough wealth in the world to provide everyone with a fair chance in life. Governments should act to ensure that taxes raised from wealth and businesses paying their fair share are used to fund free, good quality public services that can save and transform people’s lives.”

There is now the beginning of a global movement to increase taxes on the very rich. In the United States, Congresswoman Alexandria-Cortez, the new voice in the Democratic Party is proposing a marginal tax of 70%. This has been widely misunderstood or deliberately misinterpreted by those opposing the proposal.

My understanding is that her proposal is that persons will pay a 70% tax rate on income earned above $10 million. For income earned below $10 million, the taxpayer will pay the usual rate. For example, in the Philippines if there is a 70% marginal tax rate on income over P100 million, a taxpayer will pay the usual rates for income up to P100 million. For any income over P100 million, the taxpayer will pay a tax of 70%.

Senator Elizabeth Warren is proposing a wealth tax. This tax is a levy on the total value of personal assets, including bank deposits, real estate, assets in insurance and pension plans, ownership of unincorporated businesses, financial securities and personal trusts. Warren is proposing an annual levy of 2% of wealth above (or more than) $50 million and a 3% levy on wealth above ( or more than) $1 billion.

Recent polls show that both proposals are gaining popularity. This is understandable because very few people earn more than $10 million a year or have an estimated wealth of more than $50 billion. The Economist has its own proposal:

“One is to increase inheritance tax, an inequality buster is relatively gentle on investments and work incentives when levied at moderate rates. Higher property taxes can efficiently capture some of the astronomical economic gains that landowners near cities have enjoyed. “The third is to raise taxes on corporations that enjoy abnormally high profits without severely inhibiting growth.”

If the elite do not address rising income inequality, the result will be the increasing rise of populism and authoritarianism. When Bregman told the super rich to pay their fairer share of taxes, he actually also said: “This is about saving capitalism.”