In search of another path for economic equality
Another year, another session of the World Economic Forum at Davos and yet another open letter put forth by a group of the ultrawealthy calling for the urgent implementation of wealth taxes. This time around, 206 signatories from 12 countries — identifying themselves as ‘Patriotic Millionaires — have called for urgent redressal of rampant economic inequality plaguing the modern capitalistic system as a whole. One of the signatories, Abigail Disney, heir to a multibillion-dollar media empire, has been quoted as saying that extreme wealth is eating our world alive. It is undermining our democracies, destabilizing our economies, and destroying our climate.” Specifically taking aim at the WEF session at Davos, Disney added- “But for all their talk about solving the world’s problems, the attendees of Davos refuse to discuss the only thing that can make a real impact — taxing the rich.” Cutting comments aside, the ‘Patriotic Millionaires’ also have data to back up their rhetoric. In coordination with various groups such as Oxfam and Fight Inequality Alliance, the group of ultrawealthy ‘patriots’ have put out a report highlighting the growing trend of economic inequality worldwide. The report notes that the number of billionaires worldwide has exploded by 103.5 per cent in the last decade, with billionaire wealth ballooning by as much as USD 5.9 trillion during this period. In its report, Oxfam notes that the top one per cent of the ultrawealthy have seen exponential growth in their fortunes during the period of the ongoing global pandemic. To be precise, of the roughly USD 26 trillion in wealth generated between the beginning of the pandemic in 2020 and the end of 2021, the top one per cent has accumulated as much as 63 per cent of the total. The remaining 37 per cent is divided up between 99 per cent of the world population. To put these figures in perspective, it should be noted that while the rich were getting richer during the pandemic, there was a sharp increase in extreme poverty worldwide. According to the World Bank, the pandemic has pushed over 70 million people into extreme poverty, with as many as 685 million people living in such a state by the end of 2022. Even given current recovery trends, the World Bank notes that nearly seven per cent of the planet’s population, some 574 million people, will be living on less than USD 2.15 a day by 2030. At the same time, several projections estimate that the top one per cent of the ultrawealthy will own as much as two-thirds of all the wealth in the world. The solution to this problem, at least a portion of that solution may lie in the aforementioned wealth taxes. A wealth tax, simply put, is a tax applied on the total wealth owned by an individual minus their debts. Wealth taxes are separate from other forms of taxes like income tax or capital gains tax and would apply to a wealthy individual even if they do not earn an income within a particular year or sell assets. Proponents of wealth taxes claim that such taxation can bring a level of fairness to taxation systems worldwide. Existing systems such as income tax and capital gains tax are generally set up in such a way that the ultrawealthy can game the system to pay far lesser taxes than what is due. In the US alone, a 2021 report by the US Department of Treasury noted that the wealthiest Americans were dodging as much as USD 163 billion in taxes every year by legally exploiting existing loopholes. In theory, wealth taxes can close the gaps that the ultrawealthy exploit to pay a lesser share of taxes as compared to middle and lower-income taxpayers. Another stated benefit of applying this tax is the revenue governments worldwide can potentially gain. The report by the Patriotic Millionaires notes that immediate implementation of a taxation model that charges a wealth tax of two per cent for those who have a net wealth of USD 5 million or more, three per cent for USD 50 million or more, and five per cent for those with more than USD 1 billion could produce around USD 1.7 trillion worth of revenue in a single year. Of course, wealth taxes are not without their detractors and potential downsides. Critics note that not only will wealth taxes be difficult to implement but would also incentivise the ultrawealthy to come up with ever more elaborate methods to dodge taxes. Additionally, wealth taxes go against the logic of ‘trickle-down’ economics that have driven much of modern capitalism. With all that said, how does any of this matter to the average Indian? Well, as a growing economic superpower, it should be no surprise to note that India follows the same wealth accumulation trends that are being seen worldwide. In specific reference to India, the report put out by the Patriotic Millionaires notes over the last decade, from every USD 100 of wealth created, USD 40 has gone to India’s ultra wealthy with the bottom 50 per cent only receiving USD 3. Given that India is projected to become the world’s fastest-growing major economy in the coming years on the back of its large under-30 population, such a trend of wealth distribution does not bode well for the future of the country. While India did once have a wealth tax, it was scrapped back in 2016. According to estimates put out by Oxfam, the reintroduction of such taxation could have major implications for a multitude of welfare programmes in India. A two per cent wealth tax could support the nutrition requirements of India’s malnourished for the next three years. A one per cent tax could support India’s National Health Mission for the next 1.5 years and a 2.5 per cent tax would be almost sufficient to bring 150 million Indian children back to schools. Even if wealth taxes in their current form may not be the exact answer to growing economic inequality, it is abundantly clear that the current system of taxation that favours the rich is not working out to the common benefit of society.