World’s richest expensive fiscal contraction after 40% rise in fortunes
Yet in many ways, the richest people in the world left the rest of us behind long ago.
The world’s 500 richest people are now worth $ 8.4 trillion, more than 40% in the year and a half since the global pandemic began its devastation. Meanwhile, the economy’s biggest winners, the tech corporations that created many of these vast fortunes, pay lower tax rates than supermarket clerks, and their mega-rich founders can take advantage of loopholes to pass huge windfall profits to heirs. largely tax-free.
Now, a group powerful enough to challenge the supremacy of the tech titans is about to take action. Leaders of the Group of Seven, including US President Joe Biden and UK Prime Minister Boris Johnson, will meet in south-west England this weekend, where they are expected to endorse a plan to plugging the holes in the world’s tax system.
While the changes still need the approval of a larger group of nations, including China, before becoming a reality, the G-7 deal marks a historic turning point after decades of falling taxes on multinational corporations.
“It is very easy for multinationals and the wealthiest people to escape taxes. What we are seeing with the G-7 is that the time has come for politicians to regain power, ”said Philippe Martin, former adviser to French President Emmanuel Macron, who now heads the Conseil d’Analyse Economique. “There is a window of opportunity, a tipping point where they are realizing that they need fiscal power and they need to spend more.”
The deal would reinforce Biden’s own plans to raise taxes on corporations and the wealthy by raising rates, making heirs pay more, and equalizing rates between investors and workers.
The proposals are part of a global revival of initiatives to target the rich, from Buenos Aires to Stockholm to Washington, including new taxes on capital gains, inheritance and wealth that have gained momentum since Covid-19 opened huge holes. fiscal in government budgets. the world.
US Treasury Secretary Janet Yellen framed the G-7 deal as a way for governments to protect their national sovereignty to establish fiscal policy.
“For too long there has been a global race to the bottom in corporate tax rates,” Yellen said after the G-7 finance ministers meeting in London last week, ahead of this weekend’s meeting.
Meanwhile, Amazon and some other tech companies have backed the deal, believing that the global regime will be more manageable than the costly alternatives individual countries are pursuing. Bezos has also voiced support for higher corporate taxes in the United States to pay for infrastructure.
Proponents of higher taxes say the steps are necessary to prevent a rise in populism and even for the sustainability of capitalism.
“The most visible and prominent winners from globalization are these big multinationals whose effective tax rates have collapsed,” said Gabriel Zucman, professor of economics at the University of California at Berkeley, who tracks wealth and inequality. “That can only lead to a growing rejection of that form of globalization by the people.”
The World Economic Forum, the organizer of the annual conference for the rich and powerful in Davos, Switzerland, published a white paper this month arguing that “tax systems must be efficiently redesigned to tax capital and multinationals.”
Governments need the revenue and “progressive taxation will be an essential mechanism to compensate for the uneven recovery that is already underway,” according to the report.
There are still many advocates of low taxes.
Conservative economists like Douglas Holtz-Eakin, president of the American Action Forum, argue that taxing the rich and corporations more will hurt the economy.
“Higher taxes on capital generally increase the possibility of a slowdown in productivity growth,” said Holtz-Eakin, who was an adviser to President George W. Bush.
However, that view is losing ground as resentment grows over the ways highly profitable corporations cut their taxes.
Facebook, Apple, Amazon, Netflix, Google, and Microsoft collectively evaded roughly $ 100 billion in US taxes from 2010 to 2019, according to an analysis of regulatory filings by Fair Tax Mark, a forward thinking think tank. Many of those tax-free earnings were moved to tax havens such as Bermuda, Ireland, Luxembourg, and the Netherlands.
Amazon paid an effective corporate tax rate of 11.8% in 2020, according to a Bloomberg Economics analysis, and it’s not an outlier among highly successful tech companies. Facebook, founded by the world’s fifth-richest person, Mark Zuckerberg, paid 12.2% last year.
When asked to comment for this article, an Amazon spokesperson pointed to some of the company’s previous statements related to its tax bill, including, in part: “Amazon’s taxes, which are publicly reported, reflect our investments. current US tax laws, employee compensation and current laws. ”
As a mix between a tech company and a retailer with a massive physical infrastructure, Amazon can use a host of long-standing and low-key tax preferences for equity compensation, buildings, research and development. Bezos has pushed to reinvest the profits in the company, a strategy that keeps taxable income low and tax breaks high.
Amazon completely avoided government income taxes in 2017 and 2018 thanks to its clever use of the tax code. Since then, the company has had to pay some income taxes to the Internal Revenue Service, but it has been well below the general rate of 21% installed under President Donald Trump.
Billionaire tech founders often pay even less personally than their corporations.
Bezos, for example, became rich by $ 77 billion in 2020, according to the Bloomberg Billionaires Index. But in the U.S., stock earnings are only taxed when sold, at a much lower rate than well-off workers pay, meaning Bezos owed at most a few billion dollars in US Treasury taxes.
“The wealthiest in this country, who benefited enormously during the pandemic, have not been paying their fair share,” Senate Finance Committee Chairman Ron Wyden said after ProPublica reported Tuesday that several of the billionaires of the world, including Bezos, did not pay any federal income. taxes in some years.
The media organization said it obtained confidential tax documents on thousands of the wealthiest Americans, including Warren Buffett and Michael Bloomberg, owner of Bloomberg LP, the parent company of Bloomberg News. Bloomberg and others told ProPublica that they had paid the taxes they owed.
To eliminate perks in the U.S. tax code that benefit the ultra-rich, Biden has proposed taxing inherited assets that currently escape liens and raising the top rate on investment income so that well-paid workers and investors pay the same.
On an international scale, the administration is seeking a global minimum tax of at least 15% for the most profitable companies in the world; The deal is expected to be pushed forward at the G-7 meeting this weekend.
The G-7 deal would change other rules for taxing multinationals, in order to undermine efforts to shift the profits to low-tax countries. Biden also advocates raising the U.S. corporate rate to 28%, partially reversing Trump’s tax overhaul.
Tech companies could see their effective tax rates rise if a blanket tax deal is reached, according to research by Morgan Stanley. Alphabet’s Facebook and Google could pay 28% of their profits worldwide, up from 18% and 17%, respectively, under current rules, according to the report.
Despite all the talk of taxing the rich, Biden’s proposals and the international tax deal face serious obstacles before being adopted.
While some of his fellow Democrats, who have limited control of Congress, are pushing for more radical changes to property and wealth taxes, others are hesitant.
The next step for the global tax negotiations, which were launched years ago by the Organization for Economic Cooperation and Development and in which approximately 140 nations participated, is to reach an agreement among the countries of the Group of 20. Finance ministers The G-20, which collectively oversee about 90% of the world economy, will meet in July in Venice.
Obstacles to reaching a deal before the end of the year include China, which may seek exemptions from the minimum tax.
Still, there is hope that the global effort will “end the madness,” said Pascal Saint-Amans, director of the OECD’s center for fiscal policy. “You had loopholes everywhere and no one was taking care of that. It is undermining the very goal of capitalism and a free market economy. ”