Tailor tax regime for socio-economic change
December 16, 2021
Adequate public finance and investment are required to secure the future economic and social well-being of people. — Devinder Sharma
Among all the heads of state that made headlines at the COP26 negotiations in Glasgow, chances are you wouldn’t have been told what the Prime Minister of Barbados, Mia Mottley, said in her eight-minute address. The mainline media didn’t talk of it, and what she said was uncomfortable for big business as well as for the global leadership to even acknowledge. Each line of her powerful address brought out the bitter truth that the world tries so hard to push under the carpet.
Mia Mottley talked of quantitative easing, an instrument of monetary policy that has remained outside the purview of TV discussions, and in fact is not even deliberated much in the economics classrooms. As an economic expression, it means buying bonds to lower the interest rates on savings and loans, but in simple terms, it means printing surplus money. She talked of $25 trillion of surplus money printed by central banks of the wealthy countries in the past 13 years: “Had we used those $25 trillion to purchase bonds to finance the energy transition, of how we eat, of how we move around in transport, we would have today reached that 1.5 degree limit that is so vital to us,” she stated.
As I had explained in one of my earlier articles (The Tribune, May 22, 2021), $9 trillion of surplus money that the central banks had printed in 2020 alone had actually gone into the pockets of the rich via the financial markets. While the wealth of the super-rich increased by a whopping $5 trillion to $13 trillion during the pandemic, imagine how gigantic the $25 trillion quantitative easing booster dose must have been for the soaring wealth of the ultra-rich. Nevertheless, if the surplus money was instead routed to provide for the global climate finance requirement of $100 billion a year that the Paris Agreement had promised for, the world would have been a much safer place to live. As the Barbados Prime Minister had worked out, quantitative easing could have been easily utilised to create a $500 billion fund, which would hardly be 2 per cent of the surplus money printed.
In fact, if I were to add another $100 billion that is required to fight extreme global poverty, a fraction of the surplus money that is printed, could have been more than sufficient to make the world move towards a utopian stage where poverty becomes history, where no one sleeps hungry, and where the world gets over the nightmare of an impending climate catastrophe. The massive amounts of quantitative easing drives growth, economists would say, but what is not told is whose growth. Why the same instruments cannot be suitably transformed to ensure that quantitative easing works for the people and the planet? That’s a question that economic thought leaders as well as G-7 leadership has conveniently ducked.
Not only quantitative easing, the rich are routinely provided with economic stimulus, bailouts and tax cuts besides other incentives. In the US, effective corporate income tax has come down from 50 per cent in 1950 to 13 per cent in 2020. In India, corporate tax has been lowered from 30 per cent to 22 per cent, and the demand is to bring it still further down. Not investing the amount saved in creating employment, these tax cuts have often helped companies to buy back shares. In last five years, Indian companies have gone in for stock buyback to the tune of Rs 2 lakh crore.
The rich don’t become ultra-rich because they did something extraordinary but it is simply because macro-economic policies are so designed to help transfer wealth to them. So much so that in America, the top 1 per cent holds 15 times more wealth than the bottom 50 per cent. In India, the top 1 per cent holds four times more wealth than the bottom 70 per cent. Despite this generosity, the top 1 per cent globally has safely hidden an estimated $7.6 trillion in tax havens.
At a time when 55 corporations in the US haven’t paid any tax, US President Joe Biden has publicly accepted the implicit bias in the tax regime. In a tweet last week, he wrote: “Those at the top have gotten a free ride — at the expense of the middle class — for far too long. My Build Back Better Framework will make the super-wealthy and big corporations pay their fair share, and then invest that money in the middle class.” The Build Back Better Programme is the $3.5 trillion package that he recently unveiled to reduce poverty, expand healthcare and address the crisis emanating from climate aberrations.
Considering that at a time when wealth inequality is increasing, and corporate tax is being systematically lowered, what Joe Biden says makes terrific economic sense. It is well known that billionaires’ wealth increased by a whopping 70 per cent during the pandemic. To give you an idea, the wealth of America’s billionaires increased by $2.1 trillion in the first 19 months of the pandemic, of which Tesla CEO Elon Musk’s wealth surpassed $209 billion, and former co-founder of Amazon Jeff Bezos is now worth $192 billion. But they didn’t pay their share of taxes. As per
ProPublica, an investigative website, Musk didn’t pay any tax in 2018 and Bezos didn’t pay in 2007 and 2011. Reports also show that the top 400 richest in the US paid a lower tax than an average American worker.
This brings me back to the question that Mia Mottley had raised. After all, adequate public finance and investment is required to secure the future economic and social well-being of people. Decades of corporate tax avoidance, austerity and economic liberalisation have brought the world to a stage where it is awash with money, but the tragedy is that much of it is locked in corporate safe vaults. The bigger challenge, therefore, is how to reform the tax regime to make the super-rich pay, and redesign economic policies that work for people and the planet.