Monday, September 5, 2011

The "Tax Us More" movement

In a case of supreme irony, as the sovereign debt crisis lurches on, atleast some of the super-rich Europeans and Americans have appropriated the leadership mantle vacated by their political leaders and are advocating higher taxes on themselves.

Consider this. On the one hand, the political leaders and economists have been arguing that higher taxes will distort incentives, discourage people from working, and therefore lower total tax revenues. On the other hand, now the same rich target group, who the former have been trying to protect from higher taxes, comes forward and says, "why are you molly-coddling us, we want you to impose higher taxes"!

Warren Buffet took the leadership role in the US with his remarkable NYT op-ed a few days back. In Europe, the voices for higher self-taxation has been growing. A group of 16 of the richest people in France - Liliane Bettencourt, the billionaire heiress of L’Oreal; Christophe de Margerie, the head of oil giant Total; Frederic Oudea of bank Société Générale; and Jean-Cyril Spinetta, president of Air France KLM SA - signed a petition asking the French government to increase their taxes.

Their offer of a "special contribution" to tide over the difficult times is a refreshingly candid acknowledgement of their desire to perpetuate the existing system,

"We are conscious of having benefited from a French system and a European environment that we are attached to and which we hope to help maintain... When the public finances’ deficit and the prospects of a worsening state debt threaten the future of France and Europe and when the government is asking everybody for solidarity, it seems necessary for us to contribute."

Taking cue from them, a group of 50 rich Germans, who claim that they have "more money than they need", have joined the "tax me harder" movement and called on Chancellor Angela Merkel to "stop the gap between rich and poor getting even bigger". The German group, Vermögende für eine Vermögensabgabe (The Wealthy for a Capital Levy), consisting of not the super-rich, but inheritors of fortunes, claims Germany could raise €100bn (£88.5bn) if the richest (individuals with more than €500,000 in capital wealth) paid a 5% wealth tax for two years. One of them said,

"I would say to Merkel that the answer to sorting out Germany's financial problems, our public debt, is not to bring in cuts, which will disproportionately hit poorer people, but to tax the wealthy more. We are always hearing about savings packages, but never tax rises. Yet tax increases are a way out of this mess. That's where the money is: rich people... Something needs to be done to stop the gap between rich and poor getting even bigger."

An Italian, Luca di Montezemolo, President of the iconic Ferrari Group, too has joined in offereing to pay higher taxes. It is the strongest indictment of the absence of leadership among governments facing an extraordinary sovereign debt crisis. Given the fact that very few will volunteer to have higher taxes on them, these voices are surely a reflection of a much broader willingness of these people to take higher taxes. It would be a great opportunity missed to turn back the tide on lower taxes if the politicians do not act on this.

The offer from Europeans is all the more surprising given the already high taxes in these countries. The French pay a top rate of 40%, plus annual wealth and other taxes on their total assets. The richest Germans are taxed a maximum of 42%. This is yet another empirical nail in the coffin of those who argue that higher taxes crowd-out incentives among those taxed to generate more wealth.

This movement has greater significance for countries like India, where clearly by any yardstick, the rich benefit disproportionately more directly from government expenditures of all collected tax revenues and enjoy the indirect benefits of crony capitalism (how many of the big business success stories in the country does not have a few skeletons?).

So, when is this global movement by the rich themselves coming forward to pay higher taxes going to reach India? When are our rich willing to show some leadership and have their carpe diem? A good place to start would be the progressive "young turks" of the second and older generation of businessmen, who have inherited rather than created their wealth.

1 comment:

KP said...

Dear Gulzar,

Interesting closing observations.

The most interesting observation you can make about the "younger" generation of inheritors - particularly those in the ambit of power - whether through politics or business - is the complete absence of any ambivalence when it comes to their "inheritance" - ( or the means through which it was acquired).

The almost "complete" silence that we saw during the anti-corruption agitation from this class - seemed like a tactical ploy to remain under the radar till the environment got safer.

Also, while we target the "brands" ( among the young inheritors) by virtue of their visibility - I think there is a large cache of wealth that is not so obvious - but is the bounty offered to the privileged colluders between the political / bureaucratic class and the shadowy private sector - in mining / road construction / contracts of all kinds with the government ( all supplies including IT)/ and now expanded in the guise of opaque investment firms.

It is wishful thinking to expect this class to even come forward - for one of their devices is their shadowy ambiguity.