I have a secret dream, I’ve had it for a while now. In this dream, I am incredibly persuasive. I can convince anyone to come around to my point if I just have the time to explain it to them. I also, somehow, have the ability to get powerful people in the same room as me.
And you know what I do with all of that power? I convince rich people to pay their taxes.
I’ve been in this sustainable, ethical and eco space for a while now, and I don’t think we’re talking about taxes enough. So today, I’m going to talk about it.
Who knows, maybe someday, somehow, I’ll be able to achieve my secret dream. But until then I’ll settle with explaining why we should all advocate for progressive taxation policy.
The rise of billionaires
“No one makes a billion dollars. You TAKE a billion dollars,” economist Stephanie Kelton, a former advisor to Bernie Sanders, tweeted last week.
“You plunder it from the environment …You strip it using patent protections,” she wrote, referencing the many ways the U.S. enables and supports people ― IP protections, lax regulation, low taxes, weak labor protections ― in amassing obscene amounts of wealth.
Billionaires were once a rare occurrence. In 1982 Forbes released its first list of the 400 richest Americans, which included around a dozen billionaires. The richest had an estimated worth of $2 billion (equivalent to $5.2 billion today).
Now, in 2019, the list is entirely billionaires. Jeff Bezos holds onto the top spot, with a worth of $131 billion. But that’s not all. A report from Oxfam shows that the number of billionaires in the world has doubled since the 2008 financial crisis, with 26 people owning the same amount of wealth as the poorest 3.8 billion people on the planet.
So how has this happened?
In short, public policy. In recent decades governments have directly funded and helped create systems where billionaires thrive. Without strict copyright and patent protections on his software Bill Gates couldn’t have amassed a fortune, Steve Jobs used a lot of government-funded technology to create the iPhone (and was initially funded by the U.S. government’s Small Business Investment Company program), and Google’s algorithm was funded by the National Science Foundation. Taxpayers have undoubtedly boosted these companies, and in return these companies have gone to great lengths to avoid paying taxes themselves.
Because ultimately, undertaxation is the main problem to be tackled. Historically in the USA the top marginal tax rate never dropped to lower than 70% from 1936-1980. In the 1950’s, that time people referred to when they said ‘make America great again’, the top marginal tax rate was over 90%.
Things changed when Reagan came to power at the start of the 1980s, as tax rates were slashed. This has continued until the present day as the Trump administration’s tax bills disproportionately benefit the wealthy.
Simultaneously, in the 1980s Margaret Thatcher came to power in the UK. During her time in power the richest in society saw their tax rates fall from 83% to 40% (although she did maintain a 60% rate for her first nine years). In 1979 the post-tax income of the top 10% was 5 times larger than the bottom 10%, by 1997 it had grown to 10 times larger. Inequality in the UK widened: child poverty more than doubled, the proportion of pensioners living below the poverty line rose from 13% to 43%, and mass unemployment reached levels not seen since the 1930s, which in turn exacerbated the north-south divide and regional inequality. Additionally, the financial deregulation of the Thatcher years created long term financial instability, as it laid the framework for the credit bubble of the 2000s and the credit crisis, and Thatcher policies caused two recessions.
Nowadays in the UK the poorest 10% pay a higher proportion of their incomes in tax than the richest 10%. On average, outside of the US, average top personal income tax rates fell from 62% in 1970 to 38% in 2013.
Oxfam’s report also shows that the super-rich are hiding at least $7.6 trillion from the tax authorities, avoiding an estimated $200bn in tax revenues, while a recent OECD study across 21 countries revealed that over 50% of those polled were in favour of governments raising taxes on the rich.
What the US is doing
The reason that I was prompted to talk about taxes here was because discussion around the topic has increased so much recently. More specifically, there are a few proposals currently floating around in the USA in regards to changing tax laws, which you may have seen covered in the news.
The most widely discussed in recent times is Alexandria Ocasio-Cortez’s proposal to increase the marginal tax rate. Currently, those earning above $510,300 as individuals or $612,350 as couples are taxed 37%, Ocasio-Cortez would like to see those earning more than $10 million taxed at 70%, with this money used to fund the green new deal. A recent poll showed that 59% of Americans support the proposal, while it has also been found that 76% of registered voters agree that the wealthiest Americans should pay more in taxes, and 70% of respondents to a Fox News survey support raising taxes on those who earn more than $10 million a year, including 54% of Republicans.
Beyond Ocasio-Cortez, Elizabeth Warren has also suggested a new tax on the rich that would require anyone with an average gross annual income of $7.3 million and a net worth of more than $50 million to pay a 2% incremental wealth tax, with this rate rising to 3% for any fortune that crossed the $1 billion threshold. According to a Forbes analysis, this could bring in an extra $85 billion a year, or $2.7 trillion over 10 years. For context that would mean Jeff Bezos would pay around $4.1 billion annually, leaving him lots and lots of billions left over. Considering how much more one billion is than one million, it would still be basically impossible for him to spend this money.
Bernie Sanders, who has been calling for increasing tax rates for the wealthiest for a long time, also has a plan to increase taxes on estates that is similar to Warren’s in some ways. His plans include a 77% rate on wealth over $1 billion, a 55% bracket on $50 million – $1 billion, a 50% bracket on $10 million – $50 million, and a 45% bracket on $3.5 million – $10 million. This would raise $2.2 trillion in 10 years, essentially reaching the same goal as Warren but in a different way.
You can read more on where all the Democratic candidates stand on taxation, as well as various other policies, here.
Marginal tax rates explained
One of the main issues with the marginal tax rate in the USA, beyond the fact that it’s too low, is the amount of misunderstanding and misinformation that surrounds it. Multiple conservatives have tried to state that Ocasio-Cortez’s marginal tax rate of 70% means that if you make $10 million, you pay $7 million in taxes. This is incorrect. Marginal tax rates mean that it’s only any money over the first $10 million that would be taxed at a higher rate. Most Americans don’t earn more than $10 million in one year, meaning it would only affect around 16,000 of the highest earners, most of whom are celebrities or billionaires. This higher tax rate would bring in an estimated $72 billion a year, multiple economists support this idea.
The largest argument against higher taxation of the rich is the argument that it stops economic growth, however history has also shown this to be cimpletely untrue.
higher taxes on the wealthy would mean freeing up more money for everyone else. If you think of the economy as a pie, right now, billionaires are getting just about all of it, while we’re all left splitting just one slice.
If you raise taxes on the richest, their incentive to grab at every morsel declines. The theory is they’ll fight a little less hard to depress everyone else’s wages if they know that every extra million is going to get taxed away. A high-paid CEO has less incentive to keep workers’ wages low so he can get a bigger payday.
The reactions of the rich
Unsurprisingly, a lot of wealthy people don’t love these ideas.
Some billionaires who would be paying the tax characterized it as a step toward communism. “The leftists are ‘communist light’ for now,” Rockstar Energy Drink founder Russ Weiner, who is worth an estimated $4.5 billion, wrote in an email to Forbes. “They will continue to get more dangerous with their demands and actions. It will never be enough.”
This stance seems ironic when this was the norm in US policy for decades before Reagan, but that’s just my opinion.
That being said, there are also billionaires in support of these policies. Billionaire financier Ray Dalio replied ‘of course’ when asked if taxes should be raised for billionaires, Bill Gates has expressed support for higher taxation of the top economic brackets, and Warren Buffett has been an advocate of higher taxation for the rich for a long time.
Venture capitalist Chris Sacca also tweeted in support:
Yes, the details will be everything. Not everyone who is rich is liquid and able to pay cash. Asset valuation is hard. Ownership can be murky. There will be workarounds. And so on. But, the idea of a very modest tax (below expected yields) on accumulating assets, is interesting.
— Chris Sacca (@sacca) January 24, 2019
One thing that’s important to discuss when it comes to the billionaire response, is also how some billionaires have put conditions on their feelings about taxation and their wealth.
For example, JP Morgan Chase’s CEO, Jamie Dimon, has said that billionaires should pay more taxes, as long as the revenue is used effectively. This is inherently problematic, because a regular taxpayer does not get to make statements about the taxes they pay.
Basically, being a billionaire doesn’t mean you are entitled to have a say of where your tax money goes. This implies that billionaires have more moral authority because of their wealth. In reality, it is up to elected officials to make these choices as representatives of the people.
Billionaires should encourage voting and voter registration if they truly care about how their taxes are spent, not believe they deserve special authority to decide how their money is spent because they have more privilege.
Philanthropy is not a replacement for taxes
charity is a cold, grey loveless thing. If a rich man wants to help the poor, he should pay his taxes gladly, not dole out money at a whim.” It is a phrase commonly ascribed to Clement Attlee – the credit actually belongs to his biographer, Francis Beckett – but it elegantly sums up the case for progressive taxation.
We also see this in the way billionaires talk about philanthropy. It is, of course, amazing that individuals such as Bill and Melinda Gates have given away over $35 billion, spending more on global health each year than most countries and saving millions of lives. Meanwhile, other billionaires have signed up to the Giving Pledge, committing to leave half their wealth to charity (Jeff Bezos has refused to sign up for this, FYI).
But, even with these choices, philanthropy should not become a substitute for progressive taxation. Firstly, it puts the onus on the morality of the wealthy individual, assuming that they will do the right thing with their money because it’s the right thing to do. Unfortunately, recent studies suggest that rich people tend to exhibit less compassion, so banking on the morality of individuals rather than enforced policy seems like a gamble that won’t pay off.
rich people and major corporations have the means to legally avoid tax. It’s estimated that global losses from multinational corporations shifting their profits are about $500bn a year, while cash stashed in tax havens is worth at least 10% of the world’s economy. It is the world’s poorest who suffer the consequences. Philanthropy, then, is a means of making the uber rich look generous, while they save far more money through exploiting loopholes and using tax havens.
This argument is broken down very eloquently here:
Plus, the decision of philanthropic spending is made based on the interests of the philanthropist, rather than meeting the needs that need the most urgent attention.
Those choosing where the money goes are often highly unrepresentative of the broader population, and thus more likely to be out of touch with their needs. In the US, 85% of charitable foundation board members are white, and just 7% are African Americans. Money raised by progressive taxation, on the other hand, is spent by democratically accountable governments that have to justify their priorities, which are far more likely to relate to social need.
What is striking is that even as the rich get richer, they are spending less on charity, while the poor give a higher percentage of their income to good causes.
Finally, consider the billionaire approach to climate breakdown, which they’ve known about for some time:
PayPal cofounder Peter Thiel, for example, used to donate to the Seasteading Institute, which aimed to build floating cities in order to counteract rising sea levels. And Exxon Mobil allegedly knew about climate change in 1977, back when it was still just Exxon and about 11 years before climate change became widely talked about. Instead of acting on it, they started a decades-long misinformation campaign. According to Scientific American, Exxon helped create the Global Climate Coalition, which questioned the scientific basis for concern over climate change from the late ’80s until 2002, and successfully worked to keep the U.S. from signing the Kyoto Protocol, a move that helped cause India and China, two other massive sources of greenhouse gas, to avoid signing…
According to Bloomberg, investors are looking to make money off of everything from revamped food production to hotels for people fleeing increasingly hurricane-ravaged areas. A top JP Morgan Asset investment strategist advised clients that sea-level rise was so inevitable that there was likely a lot of opportunity for investing in sea-wall construction.
If we wait for the whims of billionaire philanthropy to save us, there will be no saving.
Proposals such as Alexandria Ocasio-Cortez’s push for higher taxation to fund a green new deal, therefore creating systemic change based on the most pressing issues and the major concerns of the general public, could.
Inequality makes the fight to save our planet from climate breakdown even harder. Oxfam has shown that the average carbon footprint of the richest 1% globally could be as much as 175 times higher than that of the bottom 10%. To get us to a situation where everyone on earth is living on more than $5 a day with current levels of inequality would require the global economy to be 175 times bigger than it is today, which would destroy our planet. The only way we can beat poverty while saving our planet is to tackle inequality
What the UK is doing
Honestly, not much at all in comparison. In England the tax rate stops at 45% for income over £150,000, with no further policy to differentiate the ultra-wealthy from the upper-middle class. Regardless, as the Panama and Paradise papers have shown, the wealthiest in society find ways to hide money offshore, using every trick in the book to avoid actually paying their taxes. Plus, even those that are paying taxes on their income are often able to avoid a lot of tax because their wealth lies elsewhere, such as in property. When A £17m mansion in Mayfair comes with a maximum council tax bill of £1,376, it’s easy to see how people can get away with it.
And of course, unfortunately, we now have a new prime minister. Before becoming prime minister his proposals for tax cuts included raising the high earner threshold. According to the Institute for Fiscal Studies this would mainly benefit richer households. Since coming to power analysis has shown nearly 80% of those who’ll benefit from Boris Johnson’s tax plan will be men and, let’s be honest, I doubt it’s a diverse group of men.
So what can we do?
The policies needed to reduce inequality are clear, including the provision of universal public services and social protection, paid for by taxation of the richest people and corporations. In too many countries, the reason these policies are not being implemented is because political leaders listen to elites and not to the demands of ordinary people. The more organized and vocal ordinary citizens are, the greater the opportunity to change this. In the 2000s, Latin America saw a dramatic decline in the level of income inequality, with governments raising taxes on the richest, increasing minimum wages, and investing in health, education and other public services. A major driving factor behind this was the power of ordinary people coming together to demand change.
This is where being politically engaged becomes key. There is an unprecedented amount of discussion around taxation going on in the USA, and candidate stance should be taken into account when making voting decisions. I believe each presidential candidate’s approach to taxes will tell you a lot about their real views in other areas too. If they’re in the pockets of rich lobbyists, are they really going to try and end fossil fuels? Or implement gun control? Or make healthcare more accessible? Tax policy is inherently tied with reducing inequality and is therefore linked to most other pressing social issues, candidates who will actually implement policy to change things will also have a strong plan for taxes too.
It’s also vital that, beyond voting for president, US residents research other names on their ballots, as more localised elections can be just as, if not more, important when it comes to creating change. You can get involved in your local area by volunteering for or donating to political campaigns, encouraging voter registration, and looking into how you can help educate and spread these ideas within your community.
If you are based in the USA I specifically recommend you check out Future Now, a group who were essential to Democrats flipping a total of seven chambers in 2018 and making gains in more than a dozen others. They’ve set their sights on multiple states for upcoming elections, meaning they provide great ways for you to get involved in key areas with focused, strategic ways to have the largest impact.
In the UK, while there is currently no election coming up (but honestly anything could happen at this point), this is also a time when getting involved in local politics is more important than ever. Boris Johnson’s government only has a working majority of one in the House of Commons, which already makes his tax plans more unlikely to come to fruition. But, beyond this, if local MPs are truly in touch with the people they represent, this can influence the way they vote and advocate within parliament. And if they don’t support progressive taxation? Don’t vote for them. At this point it’s easy for Johnson to lose that majority, and then there’s everything to play for.
When it comes to corporations, we all know I have a particular distaste for companies who don’t pair their fair share of tax. If you want to get involved in pushing for companies to pay their tax, or if you’re a business owner who is paying their taxes, check out Fair Tax Mark to learn how you can get involved.
I know that these are complicated matters, and I know that to some extent changing policies like this also requires us to rely on democratic systems that may not always be as fair as we would hope. But be encouraged, it only takes 3.5% of the population to ensure serious political change.
And the best part? We have had these policies in place before. Regardless of what billionaires want you to believe, these policies worked, and they made economic sense. These are not unrealistic ideals that will bring society to its knees. These are tried and tested, and quality of life was better. We have the data, and it can’t be ignored. So we can get there again, we can narrow the gap of inequality once more. We just need to talk about this more and push for it.