'When will you tax extreme wealth?' the super-rich ask
A group of billionaires and millionaires have called on world leaders at the World Economic Forum to fight social inequality by taxing the rich. But there is political resistance
"We are surprised that you have failed to answer a simple question that we have been asking for three years: when will you tax extreme wealth?" begins the open letter by an initiative called Proud to Pay More. Directed at "global leaders gathering in Davos," it was handed over to world leaders gathered at the Swiss ski resort on Wednesday. The signatories are demanding higher taxes be levied on the super-rich.
Notably, many of the signatories are among the wealthiest people in the world. Proud to Pay More comprises at least 260 billionaires and millionaires who say that steps must be taken "to address the dramatic rise of social inequality." They say a "tipping point" has been reached, whose "cost to our economic, societal, and ecological stability risk is severe — and growing every day. In short, we need action now."
They say their drive for fairer taxes represents "a return to normality, " arguing that taxing the rich will "turn extreme and unproductive private wealth into an investment for our common democratic future."
Billionaires: 'We believe we must be taxed more'
"Every moment of delay entrenches the dangerous economic status quo, threatens our democratic norms, and passes the buck to our children and grandchildren," write the signatories, who include heiresses Valerie Rockefeller, Abigail Disney and Marlene Engelhorn, an Austrian national whose forefather Friedrich Engelhorn founded German chemicals company BASF. "Not only do we want to be taxed more but we believe we must be taxed more."
Engelhorn, who has criticized the fact that Austria does not have an inheritance tax, recently made the headlines when she said she wanted to redistribute €25 million ($27 million) of her inherited wealth.
"I have inherited a fortune, and therefore power, without having done anything for it," she told reporters. She has set up a Good Council for Redistribution to develop solutions in the "interest of society as a whole."
The rich get richer — and richer and richer
The gap between the rich and the poor continues to widen worldwide. According to the World Inequality Report 2022, some 38% of the global increment in wealth between 1995 and 2021 went to the top 1%. Only 2% went to the bottom half, namely the 4 billion poorest people in the world. And after the outbreak of the COVID pandemic in 2020, global billionaire wealth rose more than ever.
Around the world, there have already been several attempts to tax large fortunes more. For example, in the 2019 presidential campaign in the United States, Senator Elizabeth Warren proposed an "ultra-millionaire tax" on every dollar of net worth above $50 million.
But it isn't easy to implement such measures. "The signatories of the petition in Davos are mainly heirs who do not actively run a company, and therefore feel uncomfortable with great wealth that they have not generated themselves," explained Stefan Bach from the German Institute for Economic Research (DIW) in Berlin. "But they tend to be isolated voices."
He said the vast majority of the super-rich were more reserved in this regard. Indeed, there was strong political resistance from business associations, which, thanks to their work with lobby groups, were generally well-connected to high-ranking politicians.
"Many large fortunes are also tied up in business," Bach said. The idea, business associations argue, is that low taxes for entrepreneurs provide incentives to invest and create jobs, meaning higher taxes could jeopardize jobs and investment — and potentially even lead to company heirs choosing not to run the company they could inherit.
"This argument essentially stifles all possible political debates on wealth or inheritance taxes," Bach said.
Europe's shift to right makes change unlikely
Generally, it does not make sense for a country to act alone when imposing taxes on large fortunes. "Bigger, international companies and, of course, the super-rich all play to the tune of international law," continued Bach, explaining that billionaires could easily relocate to other countries with more favorable tax legislation. "Nothing is gained if, in the end, it's only the well-behaved German small and medium-sized companies that get fleeced because they remain loyal to their country."
However, he pointed out that generating more income for state coffers through a balanced combination of tax increases on the top income bracket or with a wealth tax was possible. "But, of course, this can only be done in a way that is coordinated internationally," he said, adding that there had been some successful attempts to curb tax evasion by large corporations in 2021.
Over 130 countries, which together account for 90% of the world's economic output, had also agreed on aminimum 15% tax rate for companies, and in so doing were trying to prevent companies from just moving onto other countries with better tax rates. Last year, several EU lawmakers proposed a similar global minimum tax on extremely high private wealth.
But Bach doubted that there would be any developments on this front in the near future, and this was partly to do with the general shift to the right across Europe.
"There are hardly any left-wing majorities left," he said, explaining that when it came to tax measures, it was important to have conservative and liberal parties on board, but these were inherently more business-friendly. He said that in Germany, nothing would happen "in the foreseeable future," and it was "even more difficult to coordinate something like this on an international scale."
Published: 23 Jan 2024, 3:46 PM