The Billionaires' Paradise

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By THOMAS PIKETTY*

Billionaires are everywhere in magazines, and it's time for them to appear in tax statistics

While the pandemic crisis fuels the demand for social justice as never before, a new investigation by an international media consortium has just revealed the shameful financial operations of Luxembourg, a tax haven located in the heart of Europe. It is urgent to get out of these contradictions and launch a profound transformation of the economic system in the direction of justice and redistribution.

The first priority must be social, wage and ecological recovery. The Covid crisis has brought to light the low wages practiced in many essential sectors. The CFDT (French Democratic Confederation of Labor), a union with a reputation for being centrist, demanded in January an immediate 15% increase in all low and medium wages in the medical-social sector. The same should be done in education, health and all low-wage sectors.

Now is also the time to radically accelerate the pace of thermal building renovations, massively create jobs in the environmental and renewable energy sector, extend minimum income systems for young people and students. Where should we stop on public stimulation? The answer is simple: as long as inflation is close to zero and interest rates are negative, keep going. If and when inflation returns to a significant level (say, 3% to 4% a year for two consecutive years), it will be time to slow down.

The second step is that it will naturally be necessary to tax the greatest private fortunes, at one time or another, to finance social recovery and reduce the public debt. This will require a greater financial transparency effort. The OpenLux investigation demonstrated the following: the registration of beneficial owners of companies (that is, the true owners, in addition, in principle, to shell companies) made public by Luxembourg as a result of a European obligation, which, incidentally, still awaits compliance by the France, unfortunately includes many flaws. The same goes for the automatic banking information exchange system established by the Organization for Economic Co-operation and Development (OECD).

In general, all this new information is useful, but with the condition that it is actually used by tax administrations to collect on the rich who, until now, have evaded taxation. Above all, it is essential that governments provide indicators that allow everyone to see the extent to which all this allows for movement towards a fairer tax system.

Specifically, it is necessary for tax administrations to annually publish detailed information on the taxes paid and the cross-checks carried out in relation to the different categories of taxpayers in question. As with beneficial owner records, the information should ideally be named, especially for corporations and larger fortunes. If it is decided that this is not desirable, then at least the published statistical information must clearly show the taxes paid by people belonging to the very high wealth brackets: fortunes between 1 and 10 million euros, between 10 and 100 million, between 100 million and 1 billion and so on. Model tables were proposed by the laboratory on global inequalities (Laboratoire sur les inégalités mundiales) and can obviously be discussed and improved.

The general idea is simple: billionaires are everywhere in magazines, and it's time for them to show up in tax statistics. According to the magazine Challenges, France's top 500 fortunes increased from 210 to 730 billion euros between 2010 and 2020 (from 10% to 30% of GDP). How have your taxes evolved over this period? Nobody knows. If governments really have made the huge advances in transparency that they claim to have made in recent years, then it is time for them to demonstrate this by making this type of information public. If we extend the focus of the first 500 fortunes (over 150 million euros of individual assets according to Challenges) for the 500.000 highest net worth individuals (i.e. around 1% of the adult population, with net worth above 1,8 million euros according to World Inequality Data Base), then the total of the fortunes in question reaches 2.500 billion euros (about 120% of GDP), correspondingly increasing tax contributions.

To break with prevailing conservatism, it is also urgent to go back to history. After World War II, when public debt reached levels above those observed today, most countries implemented exceptional taxes on the highest private assets. This is particularly the case in Germany with the system Load balancing (or “burden sharing,” which was the subject of a fine historical study by Michael Hughes, Shouldering the Burdens of Defeat, UNC Press, 2009), adopted by the Christian Democratic majority in 1952. With a rate of up to 50% on the largest financial and real estate assets.

In thirty years, this system brought 60% of GDP to the state, at a time when billionaires were less prosperous than today. Combined with the monetary reform of 1948 and the cancellation of the foreign debt in 1953, this system allowed Germany to get rid of its public debt without resorting to inflation (which had caused so much harm in the 1920s) based on a credible objective of social justice.

It is high time to return to the roots of the successful post-war reconstruction of Europe.

*Thomas Piketty is director of research at the École des Hautes Études en Sciences Sociales and professor at the Paris School of Economics. Author, among other books, of Capital in the XNUMXst century (Intrinsic).

Translation: Aluisio Schumacher protocols for Portal Major Card.

 

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