Inequality had already seen a significant rise during the neoliberal onslaught for a number of decades, but the cracks in the economic system to protect against the ‘profit over people’ mindset of market fundamentalism due to underlying weak regulation, got all the more widened as the pandemic shock hit the global supply chains. Hence, prices were raised more than what reflected the lack of supply, and unwarranted windfall profits on one hand, and lack of adequate taxation system on the other, meant the inequality increased all the more during the covid-19 pandemic.
Rising levels of inequality and poverty require both putting in place a taxation system that properly taxes windfall profits, and is overall progressive in nature, along with addressing the loopholes in collecting taxes, and in effectively dealing with tax havens. Moreover, high levels of inflation, and a very difficult inequality and poverty situation, call for non-austerity, and counter-cyclical policy measures
The recently released report ‘Survival of the richest: how we must tax the super-rich now to fight inequality’ by Oxfam, made a thorough analysis of the level of inequality during recent times, and the taxation structures, among other reasons, that allowed such shocking outcomes. For instance, the report gave an example to reveal the difficult inequality situation ‘Elon Musk, one of the world’s richest men, paid a ‘true tax rate’ of just over hree percent 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 percent.’
No wonder that absolute poverty saw an increase during the pandemic, in addition to a general cost of living crisis on one hand, and on the other a higher cost of doing business at the back of decades-high level of inflation, and for a protracted period of time– recession-causing pandemic, sharp increase in inequality– where most of new wealth generated went into fewer hands– and increase in unemployment, as in just three years the world is all set to enter another recession.
The same report, highlighting the rising level of inequality, pointed out ‘Over the last 10 years, the richest one percent of humanity has captured more than half of all new global wealth. Since 2020, according to Oxfam analysis of Credit Suisse Data, this wealth grab by the super-rich has accelerated, and the richest one percent have captured almost two-thirds of all new wealth. This is six times more than the bottom 90 percent of humanity. Since 2020, for every dollar of new global wealth gained by someone in the bottom 90 percent, one of the world’s billionaires has gained $1.7m.’
At the same time, the report highlighted an inadequate global tax system that needed to be fixed. The report pointed out in this regard ‘…The spectacular rise of wealth and income at the very top has coincided with a collapse in taxes on the richest one percent. While there are differences between countries, the general trend towards lower taxes for the rich has been remarkably similar across all regions of the world. …For every $1 raised in tax, only four cents comes 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. …Top rates of tax on income have become lower and less progressive, with the average tax rate on the richest falling from 58 percent in 1980 to 42 percent more recently in OECD [Organization for Economic Co-operation and Development] countries. Across 100 countries, the average rate is even lower, at 31 percent. Rates of tax on capital gains – in most countries the most important source of income for the top one percent – are only 18 percent on average across more than 100 countries. Only three countries tax income from capital more than income from work.’
Rising levels of inequality and poverty require both putting in place a taxation system that properly taxes windfall profits, and is overall progressive in nature, along with addressing the loopholes in collecting taxes, and in effectively dealing with tax havens. Moreover, high levels of inflation, and a very difficult inequality and poverty situation, call for non-austerity, and counter-cyclical policy measures.
Having said that, high level of debt distress, and low fiscal space overall with developing countries has created a lot of economic misery, especially given little debt moratorium/relief, and inadequate release of special drawing rights (SDRs) has made it all the more difficult to create a much-needed resilient, inclusive, green, and sustainable economic growth.
Highlighting the need for greater tax collection from the rich, and with regard to fixing an overall broken tax system globally, noted economist, Jayati Ghosh pointed out in her recent, Project Syndicate (PS) article ‘Davos man must pay’ as follows: ‘Most of the world’s tax systems are outdated and regressive, and are therefore unable to deliver the necessary revenues or ensure that the rich pay their fair share. Likewise, our laws fail to recognize the myriad ways corporations and wealthy individuals can evade taxes and how financial globalization has enabled firms to shift profits and assets to low-tax jurisdictions. Instead of addressing these legal loopholes, governments rely far too heavily on indirect taxation, such as value-added tax (VAT), which falls disproportionately on the poor. Over the past few decades, these systemic inequities have led to a massive decline in public wealth and to enormous concentrations of private wealth.’
