Yahoo Finance Clamour for wealth tax grows after revelations about super-rich’s affairs
The revelation last week that the 25 richest US billionaires have paid very little tax even as their fortunes have soared has reignited demands for wealth taxes on both sides of the Atlantic.
An unprecedented leak of “a vast trove” of 15 years of Internal Revenue Service (IRS) data to the investigative news site ProPublica has provided a staggering insight into the legal strategies the very rich deploy to avoid tax.
It discovered that Jeff Bezos – founder of Amazon and world’s richest person, with a $193bn (£136bn) fortune – paid no federal taxes in 2011 and even claimed $4,000 in tax credit for his children.
The second wealthiest person – the head of Tesla, Elon Musk – paid no tax in 2018 because he took out vast loans against his shareholdings and deducted the interest costs he paid on the loans from his taxes.
Warren Buffett, the famed investor who has pointed out that he pays less tax than his secretary and called for reform of the system, paid an effective tax rate of just 0.1% between 2014 and 2018. Collectively, the 25 richest Americans – a group that also includes Rupert Murdoch, Michael Bloomberg and George Soros – paid 0.17% of their wealth in taxes in 2018.
“It may sound shocking,” says Arun Advani – assistant professor at the University of Warwick’s economics department and a member of the Wealth Tax Commission, which recommends the UK bring in a one-off wealth tax – “but all of this is perfectly legal, and not surprising to anyone who has spent any time thinking about the wealthy and tax.”
“The scandal here isn’t that they broke the rules – they didn’t. It’s that the rules are so bad,” said Advani, who has spent his career exploring the reasons behind why the richest people often pay the lowest tax, proportionally speaking. “It’s great that the data leak has exploded these details to the public and made regular people think about it, as it’s only with wide public support that politicians will act.”
Advani welcomes President Joe Biden’s plan to raise the top rate of income tax in the US – on people earning more than $400,000 – from 37% to 39.6% and increase capital gains tax (capital gains being a method many of the wealthy use to avoid income tax). But, he says, “the only way to really get cash from these super-billionaires is to start taxing the ownership of wealth”.
He says even the very wealthy need not fear this, as only the extremely rich would pay it. “We think there are 22,000 people with wealth above £10m in the UK,” Advani says. “So you might want to start with them or even further up. If you started there, it would only be the top 0.05% of the population.”
The UK Wealth Tax Commission said its recommendation of a one-off 1% wealth tax on households with more than £1m, perhaps payable in instalments over five years, would generate £260bn – more than enough to cover a year’s funding of the NHS and social care spending.
The proposals have yet to sway the chancellor. Rishi Sunak has also backed away from suggestions that he might increase capital gains tax in line with income tax. At present, the top rate for capital gains made on the sale of shares is 20%, and 28% for property, compared with a top rate of income tax of 45%.
Gemma McGough, a multimillionaire British entrepreneur and campaigner for a wealth tax, said: “Our economies are soft on the super-rich and hard on ordinary people. So as shocking as the figures in ProPublica’s report are, we can’t pretend to be that surprised. And the injustice we see in the US is happening the world over. As a millionaire, I know I can afford to pay more, so it goes without saying that the world’s billionaires should be taxed to the hilt. We need to tax the rich to reduce economic inequality and secure more equal societies.”
As a millionaire, I know personally that our economy enshrines wealth for the few – to the detriment of ordinary people
Morris Pearl, Patriotic Millionaires
Robert Palmer, executive director of the campaign group Tax Justice UK, says: “The richest British people will be using exactly the techniques exposed in the ProPublica leaks. If you’re an ordinary person you can’t do that, as tax comes out of your monthly pay cheque. This is deeply unfair. As we build back from the pandemic, we need to ensure we have a tax system that is fair.”
Palmer said that first all loopholes needed to be identified and closed, and then the government should introduce a one-off wealth tax “to tackle deep-seated inequality that has only got worse in the pandemic”.
Elizabeth Warren, the US senator who has proposed a 2% tax on people with assets of more than $50m and 3% on those with more than $1bn, said: “Our tax system is rigged for billionaires who don’t make their fortunes through income, like working families do. The evidence is abundantly clear: it is time for a wealth tax in America to make the ultra-rich finally pay their fair share.”
Gabriel Zucman, associate professor of economics at University of California, Berkeley who has been called “the wealth detective” for his ability to find the hidden assets of the super-rich, says the leaks showed definitively that “for billionaires, the federal income tax – the pillar of the US system – has become a voluntary tax”. He says that if Warren’s wealth taxes had been in place, the 25 billionaires would have paid $33bn in 2018 – 17 times what they actually paid.
Senator Ron Wyden, a Democrat who chairs the Senate finance committee, said the report showed “the country’s wealthiest, who profited immensely during the pandemic, have not been paying their fair share”.
Jen Psaki, the White House press secretary, said ProPublica’s report showed that “there is more to be done to ensure that corporations and individuals … [pay] more of their fair share”.
Morris Pearl, chair of Patriotic Millionaires, a group of very rich people campaigning for higher taxes to be applied to them and other members of the elite, says the report shows that the tax system was fundamentally broken and that the rich can “basically choose whether to pay taxes or not”.
“As a millionaire, I know personally that our economy enshrines wealth for the few – to the detriment of ordinary people in our country,” Pearl says. “ProPublica’s report shows that taxing wealth has to be a primary policy for governments everywhere if we want to unpick the stitched-up system we have.
“A 3% tax on wealth over $1bn is the bare minimum we can aim for. We need to foster a recovery beyond regressing to the same-old, same-old. We need to tax the rich.”
