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Friday, July 1, 2016
Analysis by Julio Godoy
- In the face of the severe sovereign debt crisis in most industrialised countries, some extremely rich people are urging governments to increase taxes on wealth.
Following the example of U.S. financier Warren Buffet, considered the third wealthiest man on earth, and who recently complained that U.S. fiscal policy was protecting the rich, numerous European millionaires are now saying that they too want to pay their share for consolidating state finances.
In an op-ed article for the French daily Le Monde, entrepreneur Maurice Lévy, president of the National Association of Private Enterprises, and considered the 238th richest man in France, said that in order to solve the sovereign debt crisis in Europe, “a fair contribution of the rich is necessary.”
“I consider normal that we, who had the chance to make money, fully play our roles as citizens and contribute to the national effort,” Lévy wrote. “Yes, in my view, a contribution by the wealthier is necessary.”
After Lévy, 16 other extremely wealthy French people expressed their wish to pay “an exceptional contribution” in the form of higher taxes, to resolve the debt crisis.
Lévy and his peers have revived the debate on fiscal policy and social justice which started in 2007 when President Nicolas Sarkozy introduced the tax cap, and considerably reduced tax on wealth.
The measure provoked a rise in the French fiscal deficit, from 2.7 percent of the gross domestic product (GDP), to 7.1 percent today. The state debt jumped from 1.211 trillion euros in 2007 to some 1.7 trillion euros in 2011.
The French fiscal system is also mired by hundreds of exceptions, which allow wealthy people to further reduce their tax load. According to estimations by the French National Institute of Statistics and Economic Studies, more than half of the 5,800 wealthiest people paid less than 25 percent tax in 2010.
Meanwhile, 50 percent of middle and lower class households paid up to 45 percent of their income in taxes. This fiscal policy has contributed to a heavy concentration of wealth: 10 percent of the French population owns more than 60 percent of country’s total wealth.
The French government announced Aug. 24, that it was introducing a temporary additional tax on the income of three percent of households with a yearly revenue above 500,000 euros. The tax will be raised as long as the state deficit remains higher than three percent of GDP.
Furthermore, the French government announced a severe austerity programme to reduce government spending by 10 billion euros per year, starting 2012.
Many have called such measures “cosmetic” and “counterproductive”. Economist Guillaume Duval told IPS that the temporary tax on wealth will contribute less than 200 million euros. “This is nothing, compared to the tax gifts the government made last year to the wealthiest people by reducing the income tax.”
Duval warned that the austerity measures would further strangulate weak economic growth.
In Germany, calls for higher taxes on wealth have been common since late 2005. At the time, a group of 21 wealthy people wrote an open letter to Chancellor Angela Merkel calling for an increase of tax on assets, that would net 38 billion euros.
One of the signatories of the letter, ship builder Peter Kraemer, said at the time that “wealthy people in Germany are ready to pay higher taxes” to contribute to social justice. The appeal, so far ignored, was repeated this month, this time by members of Merkel’s ruling party, the Christian Democratic Union (CDU).
CDU fiscal policy expert Norbert Barthle said that “wealthy people should pay higher taxes” to solve the debt crisis. Germany’s sovereign debt amounts to more than 2 trillion euros.
Giacomo Corneo, professor for public finances at the Free University of Berlin, says that raising taxes on the wealthy would not only help solve the debt crisis, but also restore social justice.
“For some 20 years, we have witnessed growing concentration of wealth in Germany and in all other industrialised countries,” Corneo told IPS. “The 5,000 richest German households have increased their wealth by some 50 percent, while the average real income has stagnated.”
Corneo said that such growing discrepancies in income erode the social fabric of the country. “In the 1950s and until the 1970s, taxes on wages contributed some 50 percent to tax revenues,” he said. “The other half was made up by taxes on wealth. Today, working people contribute up to 90 percent to tax revenues, while taxes on wealth have fallen below 10 percent.”
Corneo said that the policy of tax cuts carried out by all governments since the early 1990s did not have any positive effects on growth, or on tax evasion. Furthermore, he said, governments should tax the banks’ profits, in order to pay for the giant bailouts financed by states since the outbreak of the financial crisis four years ago.
So far, these calls have gone unheard in Germany. Instead, the conservative government of Angela Merkel is considering further tax cuts in 2013.