[Peter Singer] A wealth-oriented tax system

“The tax system has shifted toward the wealthy and away from the middle class over the past decade. It’s dramatic, and I don’t think it’s appreciated. And I think that needs to be fixed. So said billionaire investor Warren Buffett 18 years ago. He illustrated his claim by surveying his office staff: Although he was then the second richest person in the world, he paid a lower percentage of his income in taxes than his receptionist.

Since then, economic inequality has only gotten worse, in part due to the rise of tech stocks that are hugely valuable but don’t declare dividends. In 2020, six of the 10 richest Americans — Jeff Bezos, Mark Zuckerberg, Warren Buffett, Larry Page, Sergei Brin and Elon Musk — were major shareholders in companies that don’t pay dividends. Together they were worth $500 billion, or 0.5% of the total wealth of the United States.

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 the 400 wealthiest families in the United States, all of whom had wealth greater than $2 billion, paid federal income tax at an average rate of 8.2% if gains on unsold inventory are counted as income. The average US taxpayer paid 13.3% of their 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 wealthy to pay higher taxes, which would reduce the deficit and would improve fairness as well. Yet Congress is not raising taxes on the rich.

Consider the glaring “carried interest” loophole in the U.S. tax code, which allows investment fund managers to pay less tax on the fees they receive from their clients, as if those fees were capital gains. rather than income. Chairman Joe Biden has said he wants the loophole closed, but tax reform proposals must go through the House Ways and Means Committee, chaired by Richard Neal. In 2007, Neal, a Democrat, backed an unsuccessful attempt to close the loophole. Then he started receiving big donations from the corporate sector, including $2.9 million for his 2020 campaign alone. Last month, the House Ways and Means Committee released its tax reform proposals. Closing the carried interest loophole was not one of them.

The conclusion is inescapable: the United States is no longer a democracy. It is a plutocracy. But countries where money has less influence on legislation also struggle to tax the rich. The Pandora Papers, released earlier this month by the International Consortium of Investigative Journalists, show how wealthy people in more than 200 countries and territories keep their assets offshore, many to avoid taxes.

Among them was Brazilian Finance Minister Paulo Guedes, who bears the ultimate responsibility for generating the revenue his country needs, but has moved nearly $10 million of his and his family’s money to the islands. British virgins. Andrej Babis, prime minister of the Czech Republic when the documents were released, claimed his decision to place assets in offshore accounts did not involve any wrongdoing. The electorate was perhaps skeptical: he then lost a close election.

When leaders of the G-20, which includes the world’s major advanced and emerging economies, met in Rome over the weekend, they endorsed a deal to tax large corporations at a minimum rate of 15%. The aim was to end a “race to the bottom” that has driven down corporate tax rates as countries compete to attract investment. But the agreement will be phased in over 10 years and includes important exemptions. Even for companies that are not eligible for an exemption, the minimum rate of 15% is lower than what most companies based in developed countries pay.

Is there anything else the G-20 could do about the tax inequity between the rich and most working people? Economists Emmanuel Saez and Gabriel Zucman of the University of California at Berkeley have proposed a wealth tax of 0.2% per year on the value of all shares of publicly traded companies. Such a tax, they note, is progressive, as the wealthy own a lot of company stock and the poor own none. It is also difficult to escape, because the value of a company’s shares is public.

The opening of the global economy over the past 30 years has lifted hundreds of millions of people out of extreme poverty, but it has also enriched multinational corporations, which have been able to shift their profits to where the tax rate companies is the lowest. The G-20 took a step to remedy this by accepting the proposed minimum rate of 15%, but that leaves untouched the wealth that comes from startups that do not make a profit but whose stock prices skyrocket. G-20 countries can solve this problem by adopting a wealth tax as recommended by 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)

By Korea Herald ([email protected])

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