Hurun Global Rich List & LSE: Inequality shoots up in pandemic

Time to hike taxes on bloated billionaires & pay poor

Business

March 3, 2021

/ By / New Delhi

Hurun Global Rich List & LSE: Inequality shoots up in pandemic

According to Hurun Global Rich List 2021, the world added 414 new billionaires in the year 2020 (PTI Photo)

A recent study by the London School of Economics shows that tax cuts for the rich do not propel the economy but end up only increasing inequality between the rich and poor. Backing up LSE, the Hurun Global Rich List 2021 shows the world added 414 new billionaires in 2020 and wealth of total 3258 billionaires rose 32 pc, reaching USD 14.7 trillion.

The year 2020 was disastrous for the global economy as the GDP in practically every country collapsed by record numbers mainly due to the lockdowns that were imposed across the globe. Close to 500 million jobs may have been lost and hundreds of millions pushed into poverty. However, there was a niche that not only escaped any negative impact of the pandemic but actually managed to grow at a record pace.

According to Hurun Global Rich List 2021, the world added 414 new billionaires in the year 2020, or about 8 every week and the total wealth of all the 3228 billionaires globally stood at USD 14.7 trillion, more than China’s GDP and at least six times as much as India’s. Indeed, if the world’s billionaires constituted a country, they would be the second-biggest economy in the world, behind only the United States. And with a record 32 pc growth in their combined wealth, the billionaire-nation would have registered the fastest economic growth in any country’s history.

There is no secret behind the growth of billionaires’ wealth at a time when economies around the world tanked. It is a clear and direct outcome of misguided government policies in response to the pandemic. Most of the governments opened up their purses like never before to help economies revive, with many nations offering trillions of dollars each in assistance to the companies with the objective of preserving jobs. Though most of the governments also provided relief to the people, these reliefs were minimalistic in comparison to the benefits offered to the companies, even in form of tax cuts.

This is the sole reason why the stock markets have been soaring all through the year, with a brief blip right at the beginning of the pandemic and as a result, the indices of most stock exchanges around the world ended 2020 at record highs, even while most economies and people continued to struggle, even for survival.

The flaring up of stocks has directly translated into the rise in the wealth of the billionaires and may have also dramatically increased the gap between the rich and the poor in every single country. Though no comprehensive study has yet been done on the rise in inequality in 2020, several reports such as from the British charity, Oxfam, indicate a sharp spike in it.

But while the billionaires have not only recovered their losses but also gained to an unprecedented extent, Oxfam says that it could take more than a decade for the world’s poorest to recover from the economic impacts of the pandemic. The report by Oxfam says that Covid-19 has the potential to increase economic inequality in almost every country at once, the first time this has happened since records began over a century ago. Rising inequality means it could take at least 14 times longer for the number of people living in poverty to return to pre-pandemic levels than it took for the fortunes of the top 1,000, mostly white male, billionaires to bounce back.

In this context, it is indeed welcome to note that instead of going in for an across-the-board tax cut for the companies and the super-rich, Argentina has imposed a one-time tax on the wealthy. The government decided that those with assets of more than USD 2.3 million will have to pay about 3 pc on assets declared within the country and over 5 pc on assets held abroad. Even though the tax was received with the usual brouhaha by the stock market and those who were hit by the tax, it is a measure that has been welcomed by NGOs and the poor as being a step in the right direction to address inequality and help the government pay for part of the economic burden imposed by Covid-19. The government hopes to raise around USD 3 billion and the money will also help fund scholarships and social aid.

The negative impact is unlikely to be significant in any manner as it applies only to 12,000 persons across the whole country, even though the opposition called it ‘confiscatory’. But the pandemic has badly hit Argentina, leading to record levels of poverty. According to estimates, almost 40 pc of the country’s population lives under the poverty line, while the unemployment rate is now at 11 pc.

No positives from tax cuts

The International Inequalities Institute of the London School of Economics (LSE) conducted a study of 18 countries belonging to the Organisation for Economic Cooperation and Development (OECD) a rich country lobby group, for a period of over 50 years. In this period, incidentally, overall tax rates in practically all the countries have fallen dramatically. The study was to estimate the impact of major tax cuts for the rich on income inequality, economic growth, and unemployment. The study found that major reforms reducing taxes on the rich lead to higher income inequality as measured by the top 1 pc share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment.

The findings are crucial as several countries including the UK are being urged to use one-off wealth tax to help repair battered public finances, following the example of Argentina. The study, by David Hope of LSE and Julian Limberg of the King’s College London, points out that for several decades after the Second World War, incomes of the wealthy 1 pc fell. But the wave of massive tax cuts that began in the 1980s in many nations has led to a trend that no leader has sought to tinker with and the conventional wisdom in government circles, egged on by business leaders, who clearly had a vested interest, has remained that tax cuts are good for the economy and the country as a whole and not just the direct beneficiaries of the tax cuts themselves.

But the study by Hope and Limberg shows that there is hardly any data linking tax cuts and improved economic performance. This echoes analyses which have questioned the power of such tax-cutting strategies such as former US President Ronald Reagan’s ‘Reaganomics’.

The LSE study considers a range of data points and covers the performance of economies for about 50 years after the tax cuts. The study concludes by saying that “estimated effects for these variables are statistically indistinguishable from zero”, or in layman’s parlance, tax cuts make little or no difference to GDP and jobs. The authors say those policymakers should not worry that raising taxes on the rich to fund the financial costs of the pandemic would harm their economies.

The study’s conclusions seem to have reached the office of US President Joe Biden who has already said that he may change course and raise capital gains taxes and a few other taxes. Meanwhile, in the United Kingdom, the Wealth Tax Commission has recommended a one-off wealth tax to help shore up public finances in the country which have been under unprecedented stress due to the pandemic. It says that instead of raising wealth tax, the government should levy a tax on millionaires. Putting a tax of just 1 pc on households with an income above GBP 1 million can raise GBP 260 billion in the next five years, almost the total that the pandemic has cost the government.

This is a trend that governments across the world need to follow and especially in countries like India where inequality has been racing ahead unchecked for decades and more so in the past few years.

YOU MAY ALSO LIKE

0 COMMENTS

    Leave a Reply

    Your email address will not be published. Required fields are marked *