Moderator:
- Rhedi Tlhabi, Al Jazeera
Panelists:
- Debora Freire, Subsecretary of Fiscal Policy Brazil
- Patrick Olomo, Head of Economic Policy and Sustainable Development, African Union
- Erica Payane, Founder Patriotic Millionaires
- Jayati Ghosh, Co-chair ICRICT
- Alexander Klemm, Division Chief FAD IMF
A recording of this session is available here.
Introduction by the moderator: Taxation of the Super rich agenda is a step closer because Brazil – the chair of the G20 this year, has achieved a historic step by bringing all G20 countries finance ministers meeting to commit to work together on this new agenda. In this panel we will unpack how we got to this point, what are the next priorities as well as the challenges in achieve this objective.
Debora: Brazil has achieved a historic story step this year as chair of G20, for the first time the 20 countries have agreed to sign a declaration expressing commitment to progressive taxation. The idea of a declaration on international tax cooperation came from the priority that the Brazilian presidency placed on the issue of inequality as the center of the macroeconomic agenda. We have made progress in cooperation on corporate taxation via the UN Convention on Tax, but it is not enough if we want to close the loopholes in tax systems through international operation, we also need to address individual tax evasion. The UN framework convention on international tax cooperation is a window of opportunity for the next steps to international cooperation on progressive taxation.
The next step to achieve our goal is to develop a protocol to define the concept about who are the super rich. We know that the concept of super rich varies among countries especially between developed and developing countries North and Global South, so we need to clarify who we mean, the 0.1% or the 0.01% at the top.
Most importantly we will try to develop a methodology to measure and compare effective tax policies on income and wealth across countries to achieve harmonized information on the real taxation of the super rich. Based on this methodology we will build a menu of best practices to share to improve domestic tax collection systems. This protocol aims to improve global coordination and transparency preventing tax avoidance and evasion through an international minimum tax on individuals. We are confident that the seed we have planted at the G20 by the Brazilian presidency can germinate to make this happen, and we also acknowledge that the engagement of civil society is very important to move forward with the agenda of taxing the super rich.
Erica: A Princeton study came out a few years ago that showed that in the United States the wants and needs of the average American have a statistical 0 probability of becoming law unless they are supported by either the business community or the political donor class so it stands to reason that bringing together those people to advocate on behalf of the common good. Our members include people who have at least $1,000,000 of income a year or at least 5 million of assets who have joined in our actions that we’ve taken to support this wealth taxation globally. They recognize that extreme wealth and democracy cannot co exist and that the end of democracy is a threat to everyone including them so in the fight between extreme wealth and democracy, we want democracy to win.
Alexander: Our analysis, like mentioned by previous panelists, has certainly confirmed what everybody knows, which is that labor is often very highly taxed compared to wealth or the returns to wealth. At the same time, so many countries face challenges of mobilizing domestic revenues and at the same time, so taxing the rich is a pathway to solve these issues. At the same time we have to recognize that taxing wealth or taxing wealthy people does not necessarily mean introducing net wealth tax. Our experience shows that in most circumstances it’s actually more equitable and more efficient to go after the returns on wealth, in other words to strengthen the capital income tax.
The main loophole to mention here is that capital gains in many countries are under taxed or exempt from taxation but in the majority of countries they are taxed only upon realization and that in itself already provides a major tax advantage, and that is especially a problem once we recognise that it is not very difficult to turn a different type of capital income into a capital gain.
We now finally have an agreement right. We have a global minimum tax and the reason this finally works is because of a very clever enforcement mechanism that if one country doesn’t collect the minimum tax other countries get to collect it, which then ensures that there is an incentive to collect the tax. However, it’s harder to think about how that would be done for individual income taxation so we when we think about taxing wealthy people it will be more challenging to reach a global agreement. On a more positive note, individuals are certainly much less mobile than corporations so there is a lot that countries can do to raise more taxes from super wealthy individuals on their own .
Jayati: Surveys show that 68% of people in 17 out of the 20 OCD countries were strongly in favor of wealth tax on the super rich, so we really have much more popular demand for this agenda. We also recognize that it’s essential for governments to get additional resources that the global system is not going to deliver. Ultimately governments have to be able to raise their own resources and what better way to raise them than from companies and high rich individuals who are simply not paying even the minimum tax that an ordinary salaried worker pays. This is not a rich versus poor country problem, is it’s pretty much the elites versus everybody else in every country problem.
The dimension of the multilateral system shows the most potential at the moment because we’ve already seen significant advances on taxation here. In the current UN tax discussions the debate is whether we should go with taxing the rich or go with curbing illicit financial flows – a main concern for the African Union as they are losing tens of billions every year, but there is one minimum condition for both of them. That is actually to have a proper wealth register, a register of all assets, in every country that covers both financial assets and real estate as well as other assets such as art, etc. Such a global asset register would be a great starting point in working to achieve both objectives of taxing the rich and curbing ilicit financial flows.
Patrick: The prolonged effect of the Covid-19 pandemic, climate change, the political tensions and the fragmentation of the trade system are bringing new challenges to our economies. We have clearly understood that if our taxing rights are not protected and if we are not able to widen the scope of the resources that we are collecting in our own jurisdictions it will be absolutely difficult for us to be able to pave the way to structural transformation and to achieve inclusive growth.
We are losing an estimated amount of 220 billion US dollars per year in terms of tax incentives that are fueling the super rich so you can imagine the magnitude of the problem. In the international setting, we want to make sure that there is no fragmentation when we speak about the issue of illicit financial flows and taxing the super rich because they are two faces of the same coin. We look forward to working with Brazil and other partners from the Global South to speak with the same voice and covey the same message in order to attached these objectives.
Questions and answers:
Rhedi: Erica, how do you see the US elections and their impact on achieving an international taxation system for the super rich?
We’ve seen some social unrest and reaction in some countries such as Kenya, how is the IMF going about making recommendations in headquarters when it comes to progressive taxation?
Erica: US Elections are regarded as an important turning point, but regardless of the decision we will continue to carry on with our agenda because the US has gotten itself into this position because for decades politicians of both political parties have coddled the political donor class and screwed working people. The result is the worst inequality in 100 years with a min wage of 7,25 dollars an hour. Our estate tax had an exemption of $650,000 during the Reagan years it’s now $26 million. The human cost of this inequality is extraordinary, we have 2.5 million Americans addicted to opioids, deaths due to alcohol suicide and depression are at the highest level they have ever been and for the first time in our nation’s history life expectancy is going down for segments of our population. This is happening across the globe. I believe that we are in the middle of a global oligarchical coup and we should understand it as that and Trump is an agent of that. To avoid a negative scenario, the existing administration needs to recommit to taxing wealth at the G20 meeting in November and recommit aggressively so that any change from that position is seen and reported as a change in that position. I want to ask you and everyone in this room to stick with this commit to it and push our leaders to do.
Alexander: We need to think about tax reforms in our advice to countries because one of our big jobs is to provide technical assistance to countries and advise them on how to reform their tax systems but also in our surveillance and lending. The equity impact of the reforms is incredibly important and we have developed a toolbox to assess equity impacts of our policies. We intend to publish before the end of the year the new model called Text Fit, which will allow you to assess for example the gender impact of tax reforms. We also have internal tools where you can put in tax reforms and see the impact on the different percentiles of the income distribution. Every country needs to assess their system based on how it has grown and developed over time, see where the loopholes are, what needs to be done, how can we ensure that it is better protected and more progressive. We should never lose track of the overall tax system so very often a good advice will include both a VAT and then some personal income tax. Then maybe tougher to tax capital gains so it’s a holistic set of assumptions that kind of is meant to lead to a good overall taxation system. Lastly, we should not forget that there are not that many super rich so if we really look at the revenue challenge that countries are facing, we probably need to do more than that and especially if we think of billionaires and if we have an international definition. Moreover, they are in the wrong place because they are not where most of the additional revenues are needed. Policy advice will always reflect a host of issues that require many trade-offs, we don’t want the tax reform that kind of discourages growth and then causes other problems. Other forms of tax, for example the carbon tax, is very important and according to our estimates you could get 1.1% of GDP in revenues by doing it, so you have to look at all of these things when you come up with advice for a good tax reform.
Jayati: I’ve followed relatively few countries in the recent past that have implemented IMF programs and in every single one of them the outcome is a more regressive taxation than there was earlier. Bangladesh, Chad, Sri Lanka, Ghana, Kenya are some of the few and the political fallout of some of these is significant. VAT is notoriously a regressive tax system because it generates inform from many poor people. In India we have 1.4 billion people, if we taxed those on the Forbes list – 4%, that’s 975 families, that generates more than 1% of GDP which is double our public health spending for central and state governments put together. That’s a relatively small tax on them that is generating massive incomes revenues simply because wealth inequality is so drastic. IMF should change its lending advice because they have a huge impact on country policy making.
