INEQUALITY AND POVERTY

INEQUALITY AND POVERTY

Karl Marx: Believed that capitalists shrunk the wages of the labourers as much as possible in order to skim off a wide profit margin (he called this “primitive accumulation” or in German?Ursprüngliche Akkumulation. It was very difficult for the labourers to protest or alter their circumstances.

Not only were they in desperate need of employment, but their landlords and employers could conspire to keep them desperate by raising the price of living along with any rise in wages. Modern life also brought new challenges that kept the proletariat weak: crowded quarters, disease, crime-ridden cities, injuries in the factory. In short, Marx wrote, the workers could be almost endlessly exploited.

Marx believed that because we do not distribute wealth to everyone, nor seek and celebrate unemployment, we are plagued by instability, unhappiness, and unrest.

SOUTH AFRICAN CONTEXT

One of the world’s most unequal countries

?In South Africa, the average national income of the adult population is €PPP12,400 (or ZAR117,260). While the bottom 50% earns €PPP1,300 (ZAR12,340), the top 10% earns more than 60 times more (€PPP82,500 or ZAR780,300). Today, the top 10% in South Africa earn more than 65% of total national income and the bottom 50% just 5.3% of the total.

South African income inequality

Available estimates suggest that income inequality in South Africa has been extreme throughout the 20th and 21st centuries. The top 10% income share oscillated between 50 and 65% in this period, whereas the bottom 50% of the population has never captured more than 5-10% of national income. While democratic rights were extended to the totality of the population after the end of apartheid in 1991, extreme economic inequalities have persisted and been exacerbated. Post-apartheid governments have not implemented structural economic reforms (including land, tax, and social security reforms) sufficient to challenge the dual economy system.

Wealth inequality

While the richest South Africans have wealth levels broadly comparable with those of affluent Western Europeans, the bottom 50% in South Africa owns no wealth at all. The top 10% own close to 86% of total wealth and the share of the bottom 50% is negative, meaning that the group has more debts than assets. Since 1990, the average household wealth for the bottom 50% has remained under zero.

Gender inequality

South Africa stands out as an exception in the sub- Saharan African region. The country’s female labor income share is equal to 36%, which is significantly higher than the regional average (28%). Gender inequalities in South Africa are comparable with levels observed in Western Europe (where the average earnings of women are equal to 38% of total national income on average).

Carbon inequality

South Africa is one of the highest emitters in Africa. On average, GHG emissions per capita are equal to 7.2 tCO2e/capita. This is slightly fewer than in China (8.0) and France (8.7) but considerably more than in other African countries, including Kenya (1.4), and is well over the sub-Saharan African average. On average, the top 10% emit 10 times more emissions than the bottom 50%. Since the early 1990s, these high levels of carbon inequality have remained constant.

GLOBAL CONTEXT

THE RICH GET RICHER WHILE THE POOR GETS POORER

Elon Musk, one of the world’s richest men, paid a ‘true tax rate’ of just over 3% from 2014 to 2018. Aber Christine, a market trader in Northern Uganda who sells rice, flour, and soya, makes $80 a month in profit. She pays a tax rate of 40%.

We are living through an unprecedented moment of multiple crises. Tens of millions more people are facing hunger. Hundreds of millions more face impossible rises in the cost of basic goods or heating their homes.

Climate breakdown is crippling economies and seeing droughts, cyclones, and floods force people from their homes. Millions are still reeling from the continuing impact of COVID-19, which has already killed over 20 million people.

Poverty has increased for the first time in 25 years. At the same time, these multiple crises all have winners. The very richest have become dramatically richer and corporate profits have hit record highs, driving an explosion of inequality.

Highlights

???????Since 2020, the richest 1% have captured almost two-thirds of all new wealth – nearly twice as much money as the bottom 99% of the world’s population.

???????Billionaire fortunes are increasing by $2.7bn a day, even as inflation outpaces the wages of at least 1.7 billion workers, more than the population of India.

???????Food and energy companies more than doubled their profits in 2022, paying out $257bn to wealthy shareholders, while over 800 million people went to bed hungry.

???????Only 4 cents in every dollar of tax revenue comes from wealth taxes, and half the world’s billionaires live in countries with no inheritance tax on money they give to their children.

???????A tax of up to 5% on the world’s multi-millionaires and billionaires could raise $1.7 trillion a year, enough to lift 2 billion people out of poverty, and fund a global plan to end hunger.

In recent history, taxation of the richest was far higher; how talk of taxing the rich and making billionaires pay their fair share is hugely popular; how taxing the rich claws back elite power and reduces not just economic inequality, but racial, gender and colonial inequalities, too.

In 2022, the World Bank announced that we will fail to meet the goal of ending extreme poverty by 2030, and that ‘global progress in reducing extreme poverty has come to a halt,’ amid what it said was likely to be the largest increase in global inequality and the largest setback in addressing global poverty since World War II.

The IMF is forecasting that a third of the global economy will be in recession in 2023. For the first time, the UNDP has found that human development is falling in nine out of 10 countries.

Research analysis shows that at least 1.7 billion workers worldwide will have seen inflation outpace their wages in 2022,17 real terms cut in their ability to buy food or keep the lights on.

Whole nations are facing bankruptcy, with debt payments ballooning out of control. The poorest countries are spending four times more repaying debts often to predatory, rich, private lenders than on healthcare. Many are also planning brutal spending cuts. Research has calculated that over the next five years, threequarters of governments are planning to cut spending, with the cuts totaling $7.8 trillion dollars.

Meanwhile, the scale of wealth being accumulated by those at the top, already at record levels, has accelerated. The global polycrisis has brought huge new wealth to a tiny elite. Over the last 10 years, the richest 1% of humanity has captured more than half of all new global wealth.

Since 2020, according to research analysis of Credit Suisse Data, this wealth grab by the super-rich has accelerated, and the richest 1% have captured almost two-thirds of all new wealth. This is six times more than the bottom 90% of humanity. Since 2020, for every dollar of new global wealth gained by someone in the bottom 90%, one of the world’s billionaires has gained $1.7m.

Billionaires have seen huge gains during the pandemic. A flood of public money pumped into the economy by rich countries, which was necessary to support their populations, also drove up asset prices and wealth at the top. This meant that in the absence of progressive taxation, the super-rich pocketed unprecedented fortunes.

Although billionaire fortunes have fallen slightly since their peak in 2021, they remain trillions of dollars higher than before the pandemic. This crisis-driven bonanza for the super-rich has come on top of many years of dramatically growing fortunes at the top, and growing wealth inequality.

The current cost-of-living crisis, with spiraling food and energy prices, is also creating dramatic gains for many at the top. Food and energy corporations are seeing record profits and making record payouts to their rich shareholders and billionaire owners. Corporate price profiteering is driving at least 50% of inflation in Australia, the US and Europe, in what is as much a ‘cost-of-profit’ crisis as a cost-of-living one.???????????????????

Every billionaire is a policy failure

Extreme concentrations of wealth undermine economic growth, corrupt politics, and the media, corrode democracy, and propel political polarization. Research also shows that the richest are key contributors to climate breakdown: a billionaire emits a million times more carbon than the average person, and billionaires are twice as likely as the average investor to invest in polluting industries like fossil fuels.

The very existence of booming billionaires and record profits, while most people face austerity, rising poverty, and a cost-of-living crisis, is evidence of an economic system that fails to deliver for humanity. For too long, governments, international financial institutions and elites have misled the world with a fictional story about trickle-down economics, in which low tax and high gains for a few would ultimately benefit us all. It is a story without any basis in truth.

It is a story, and an economic system that has left us without the tools or even the imagination to face this new age of crisis. It is a system that is largely discredited yet continues to monopolize the minds of our leaders. It is a system that continues to work very well indeed for a small group of people at the top – predominantly rich, white men based in the global north.

To break the discredited cycle of never-ending billionaire wealth accumulation, governments need to address all the many ways in which the economy is rigged in their favour, including on labour laws, privatization of public assets, CEO compensation and much more. While all of this is needed, Research has shown a light on one of the key solutions that it believes to hold immense potential: taxing the rich.

Research believes that, as a starting point, the world should aim to halve the wealth and number of billionaires between now and 2030, both by increasing taxes on the top 1% and adopting other billionaire-busting policies. This would bring billionaire wealth and numbers back to where they were just a decade ago in 2012. The eventual aim should be to go further, and to abolish billionaires altogether, as part of a fairer, more rational distribution of the world’s wealth.

Tax will play a crucial role in delivering that vision, but it will only happen if we make a drastic break with decades of tax cuts for the rich and corporations.

For every $1 raised in tax, only four cents come from taxes on wealth. The failure to tax wealth is most pronounced in low- and middle-income countries, where inequality is highest.

???????Two-thirds of countries do not have any form of inheritance tax on wealth and assets passed to direct descendants.

???????Half of the world’s billionaires now live in countries with no such tax, meaning $5 trillion will be passed on tax-free to the next generation, a sum greater than the GDP of Africa.

???????A new, powerful, and unaccountable aristocracy is being created in front of our eyes.

???????Top rates of tax on income have become lower and less progressive, with the average tax rate on the richest falling from 58% in 1980 to 42% more recently in OECD countries. Across 100 countries, the average rate is even lower, at 31%.

???????Rates of tax on capital gains – in most countries the most important source of income for the top 1% – are only 18% on average across more than 100 countries. Only three countries tax income from capital more than income from work.

The results have been staggering. Zooming in at the very top exposes that many of the richest men on the planet today get away with paying hardly any tax. For example, one of the richest men in history, Elon Musk, has been shown to pay a ‘true tax rate’ of 3.2%, while another of the richest billionaires, Jeff Bezos, pays less than 1%. In contrast, one of the market traders that works with in Uganda, Aber Christine, pays 40% of her profits in tax.

One of the most strategic tools to fight inequality and combat polycrisis: taxing the rich

Greater taxation of rich people and corporations is the exit door for today’s polycrisis. It can avert austerity, it can be used to fight inflation and higher prices, and it can avoid the unnecessary cruelty of mass destitution and hunger.

Greater taxation is a precondition for successful, strategic governments, giving them the resources to invest in universal healthcare and education; happier, healthier societies; innovation, research, and development; the transition to green economies; and stopping climate breakdown.

Researchers has used data from Wealth-X and Forbes to calculate that a wealth tax of 2% on the world’s millionaires, 3% on those with wealth above $50m, and 5% on the world’s billionaires would raise $1.7 trillion dollars annually.

This would be enough to lift 2 billion people out of poverty. In addition, it could fill the funding gap for emergency UN humanitarian appeals and fund a global plan to end hunger. Beyond this, the tax could help with financing the loss and damage caused to low- and lower-middle-income countries by climate breakdown and deliver universal healthcare and social protection for all the citizens of low- and lower-middle-income countries (3.6 billion people).

Taxing the super-rich directly reduces the numbers and wealth of the richest, creating more equal societies, and preventing the emergence of powerful, unaccountable, and semi-aristocratic elites. It also reduces corrosive social inequalities.

Previous moments of global crisis have seen increases in taxation of the richest, in the spirit of solidarity. Disappointingly, this did not happen during the peak of the pandemic. Instead, 95% of countries either did not increase, or even lowered, taxes on rich people and corporations.

This polycrisis is now finally shaking up old thinking. The case for taxing the rich more to support people through these crises is increasingly being made across old political divides, including from unlikely institutions such as the International Monetary Fund (IMF) and the European Central Bank (ECB). When the UK government had to backpedal on a battery of proposed tax cuts for the wealthy in October 2022, after an economic and political crisis erupted; it marked a real turning point.

Visible cracks are now appearing in the decades-long consensus that has driven the agenda of tax cuts for the rich and corporations, but the wall will not break without an active push from ordinary people. The truth is that tax cuts for the rich were never driven by popular demand: polling in many countries has shown that citizens all over the world have long seen taxing the rich more as necessary and common-sense.

For change to happen, we need to roll back the political capture that has driven the agenda of ever-lower taxes for the rich and corporations.

Polling consistently finds that most people support taxing the rich. Polling shows that in the last decade, for the first time, the majority of citizens have begun to agree that their ‘government should redistribute wealth by heavy taxes on the rich.’

An estimated 80% of Indian citizens are in favour of increasing taxes on the rich, and 85% of Brazilians are in favour of increasing taxes on the super-rich to finance essential services. In Africa, 69% of people polled across 34 countries agreed that it ‘is fair to tax rich people at a higher rate than ordinary people in order to fund government programs to benefit the poor’.

Even the super-rich agree. In January 2022, over 100 millionaires signed a letter calling for higher taxes.

As we face these new crises, we must learn the lessons of COVID-19. Governments worldwide should rapidly increase taxation of the richest.

Time for a new common sense

We need to reimagine, reinvent, and repurpose our economies to face these crises, in order to urgently build a more equal world and save our planet. In particular, we need to relearn the lessons of our own history, when the rich paid their fair share of tax and those taxes helped fund the expansion of rights such as universal access to healthcare and education.

Inequality is not inevitable. Inequality is a policy choice. Governments can take clear and concrete, practical steps to radically reduce inequality and give themselves the fiscal firepower to protect their people. They can choose to help them safely through crises, instead of imposing unnecessary suffering on them through austerity policies.

How much tax should the richest pay?

Researchers are calling for every country to implement a mix of taxes that would ensure the richest 1% pay significantly higher rates of tax, paying, for example, 60% of their income in tax, and for multi-millionaires and billionaires to pay higher rates still. This would be a percentage of their total income, from work and from their capital investments.

Rates of around this level would require at least a doubling of today’s average tax rate of just 31% on the personal income of the highest earners across 100 countries, and a quadrupling of the rate on capital gains, which is currently only 18% on average across 123 countries.

Marginal tax rates of 60% and above on personal income of the rich were the norm for large parts of the 20th century. For the super-rich – that is, those with multi-million or billion-dollar fortunes – tax rates should be 75% or higher, to discourage sky-high executive pay.

If governments are to tax income comprehensively, they must ensure that they tax gains from capital at least as much, and preferably more, than income from work. Income from capital is, in most countries, the most important source of income for the rich, and in most jurisdictions, it is currently taxed at much lower rates than income from work.

Governments should urgently implement one-off solidarity wealth taxes on the super-rich to claw back pandemic gains driven by public money. Permanent wealth taxes should be implemented and set at a rate high enough to reduce the numbers of the super-rich. Researchers has calculated that to simply keep the wealth of billionaires constant over the last five years, governments would have needed to tax their wealth at a rate of 12.8% each year.

Reducing the numbers of billionaires and the super-rich should not be achieved by tax alone; other measures are needed to construct an economy that does not produce such extreme disparities of wealth in the first place. Nevertheless, wealth taxes can and should play a pivotal role in closing the gap.

Wealth taxes should include strengthening property and land taxes. Every country also needs a high level of inheritance tax on the super-rich, to prevent inequality being perpetuated for generations and the creation of a new aristocracy. Beyond these taxes, governments should also explore the use of net-wealth taxes.

Time to tax the rich

Greater taxation of rich people is not the only answer to the inequality crisis, but it is a fundamental part of it. It is time for governments to shake off decades of failed ideology and rich elite influence, and to do the right thing: tax the rich.

The revenues raised from this new wave of progressive taxes could then be used to build a fairer, more equal, and sustainable future for us all.

Governments must use the tax tools at their disposal to turn back this tide of inequality, following these four steps to a more equal world:

???????Introduce one-off solidarity wealth taxes and corporate windfall taxes as well as much higher taxes on dividend payouts to stop crisis profiteering.

???????Permanently increase taxes on the richest 1%, for example to a minimum of 60% of their income from both labour and capital, with higher rates for multi-millionaires and billionaires.

???????Tax the wealth of the super-rich at rates high enough to systematically reduce extreme wealth and lower power concentration and inequality.

???????Use the revenues from these taxes to increase government spending on inequality-busting sectors, such as healthcare, education, and food security, and to fund the just transition to a low-carbon world.

CONCLUSION

We are living through an unprecedented moment of multiple crises. Tens of millions more people are facing hunger. Hundreds of millions more face impossible rises in the cost of basic goods or heating their homes.

Poverty has increased for the first time in 25 years. At the same time, these multiple crises all have winners. The very richest have become dramatically richer and corporate profits have hit record highs, driving an explosion of inequality. We focus on how taxing the rich is vital to addressing this unprecedented polycrisis and skyrocketing inequality.

We explore how, in recent history, taxation of the richest was far higher; how talk of taxing the rich and making billionaires pay their fair share is hugely popular; and how taxing the rich claws back elite power and reduces not just economic inequality, but racial, gender and

colonial inequalities, too. Research lays out how much tax the richest should pay, and the practical, tried, and tested ways in which governments can raise such taxation. It shows us how taxing the rich can set us clearly on a path to a more equal, sustainable world free from poverty.

Inequality is one of the most important issues today and, left unabated, has the potential to exacerbate many of the social cleavages that exist within our society. Addressing it, therefore, should be at the forefront of our policy agendas, and this report presents an important but insufficiently explored way of doing just that: taxing the rich.

Taxes that target the rich allow tax to play its redistributive function by constraining the growth of income and wealth inequalities. There is a concrete solution to the problem of inequality that NGOs have brought to the fore in so many conversations. Having said this, however, countries face significant challenges in taxing wealth, and there is a need for concrete proposals on how to do so, especially for developing countries.

There are very real constraints that revenue authorities face in the uptake. As such, it is important that we discuss the importance of implementing policies to tax the rich alongside the conversations about the capacity required to do so effectively. That is why the researchers’ recommendations around strengthening the capacity of revenue authorities and increasing transparency to allow them to track the wealth that is hidden in tax havens is so vital, especially for developing countries.

As with all policy-related conversations, the key to finding these solutions and tapping into them is political will. My hope is that this will help governments see the need to take the necessary steps to make their tax systems more equitable and ensure that those who, as we say within civil society circles, ‘earn the most pay the most.’

Taxing the wealthiest is no longer an option—it is a must. Global inequality has exploded, and there is no better way to tackle inequality than by redistributing wealth. As research shows, the richest 1% bagged nearly two-thirds of all new wealth over the past two years, nearly twice as much money as the bottom 99% of the world’s population.

Fairness is at the heart of Colombia’s tax reforms. Concretely, this means a new wealth tax, higher taxes for high-income earners and large corporations reaping extraordinary profits in international markets and ending tax incentives that exist without clear social or environmental justification. We are also implementing digital services taxes and adopting a corporate minimum tax rate, building on the international tax deal.

By abolishing decades-long tax privileges and loopholes that benefit only the richest, there will be more money to invest in free, quality public services like education and healthcare. To invest in agriculture. In climate and nature. And in peace. This is not something symbolic; it is not just talk about increasing taxes on the rich to support the poor. It is an historic shift. And it is long overdue. Colombia is one of the most unequal countries in the world. It is no surprise that inequality was a catalyst for the nationwide protests in 2021. Ordinary Colombians have had enough and demanded change.

We have listened. We have listened to the millions of Colombians working hard every day to feed their families. To women, youth and those that have been internally displaced. To the small businesses that are the backbone of our economy. There can be no sustainable future for us all without fair taxation. And while most of the world is backpedaling on shifting away from fossil fuels, there is commitment to Colombia’s energy transition remains firm. The same holds true for international tax deals, which should benefit all countries, not just the richest.

As humanity we are facing unprecedented crises. I would encourage the leaders of all nations to ensure the richest in society pay their fair share of tax, to enable us to face these crises, overcome them, and build a better future for all. José Antonio Ocampo Minister of Finance and Public Credit, Colombia

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Sources?

https://www.oxfam.org/en/research/survival-richest

https://inequalitylab.world/en/