[Peter Singer] Tax system tilted toward the wealthy

“The tax system has tilted towards the rich and away from the middle class over the past decade. It’s dramatic and I don’t think it’s appreciated. And I think it should be addressed. ”That’s what billionaire investor Warren Buffett said 18 years ago. He illustrated his claim with a survey of his office workers: although he was the second richest person in the world at the time, he paid a smaller percentage of his income in taxes than his receptionist.

Since then, economic inequality has only worsened, in part due to the rise of technology stocks, which are immensely valuable but don’t explain dividends. In 2020, six of the top 10 richest Americans – Jeff Bezos, Mark Zuckerberg, Warren Buffett, Larry Page, Sergei Brin, and Elon Musk – were major shareholders in non-dividend companies. Together they were worth $ 500 billion, or 0.5 percent of total US wealth.

Last month, a White House paper co-authored by economists from the Council of Economic Advisers and the Office of Management and Budget estimated that America’s 400 richest families, all with assets of more than $ 2 billion, were one Federal income tax paid at an average rate of 8.2 percent when gains on unsold stocks are counted as income. The average American taxpayer paid 13.3 percent of his income in federal taxes.

The US budget deficit as a percentage of gross domestic product is now at its second highest level since 1945. In poll after poll, Americans say they want the rich to pay higher taxes, which would reduce the deficit and improve equity as good . However, Congress does not levy taxes on the rich.

Consider the egregious “carried interest” loophole in US tax law, which allows mutual fund managers to tax the fees received from their clients at a lower rate than if those fees were capital gains, not income. President Joe Biden has said he wants to close the loophole, but tax reform proposals must pass through the House Ways and Means Committee, chaired by Richard Neal. In 2007, Neal, a Democrat, supported an unsuccessful attempt to fill the gap. Then he received large donations from the corporate sector, including $ 2.9 million for his 2020 campaign alone. Last month, the House Ways and Means Committee released its proposals for tax reform. Closing the carried interest loophole was not one of them.

The conclusion is inevitable: America is no longer a democracy. It’s a plutocracy. But even countries where money has less influence on legislation struggle to tax the rich. The Pandora Papers, published earlier this month by the International Consortium of Investigative Journalists, show how wealthy people in more than 200 countries and territories keep their fortunes overseas, many of them to avoid taxes.

Among them was Brazil’s Treasury Secretary Paulo Guedes, who has ultimate responsibility for his country’s revenues but has transferred nearly $ 10 million of his own money and that of his family to the British Virgin Islands. Andrej Babis, the Czech Prime Minister, claimed when the papers were released that his decision to put assets in offshore accounts did not constitute wrongdoing. The voters are likely to have been skeptical: He then lost a narrow election.

When the heads of state and government of the G-20, which includes the world’s major industrialized and emerging countries, met this weekend in Rome, they agreed to an agreement to tax large companies at a minimum rate of 15 percent. The aim was to end a “race to the bottom” that has pushed corporate tax rates down in the competition between countries for investment. However, the agreement is staggered over 10 years and contains significant exceptions. Even for companies that are not eligible for an exemption, the minimum rate of 15 percent is lower than most companies based in developed countries pay.

Is there anything else the G-20 could do about tax equality between the rich and most of the working people? University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman have proposed a wealth tax of 0.2 percent annually on the value of all shares in publicly traded companies. Such a tax is progressive because the rich own many company shares and the poor do not. It’s also hard to get around because the value of a company’s stock is public.

The opening of the world economy over the past 30 years has lifted hundreds of millions of people out of extreme poverty, but has also enriched multinational corporations that have been able to shift their profits to where the corporate tax rate is lowest. The G-20 took a step to remedy the situation by accepting the proposed 15 percent minimum rate, but that leaves untouched the wealth that comes from startups that are not making profits but still have soaring stock prices . The G-20 can counter this problem by adopting a wealth tax based on the recommendations of Saez and Zucman.

Peter singer
Peter Singer, Professor of Bioethics at Princeton University, is the founder of the non-profit organization The Life You Can Save. – Ed.

(Project syndicate)

From Korea Herald (khnews@heraldcorp.com)

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