Muhammad Hammad

Millions of people are facing hunger. Hundreds of millions more face impossible rises in the cost of basic goods. Climate breakdown is crippling economies and droughts, cyclones and floods are forcing people from their homes. Millions are still reeling from the continuing impact of COVID-19, which killed over 20 million people. Global poverty has increased for the first time in 25 years.

This report has four chapters and this report focuses on how taxing the rich is vital to addressing unprecedented and skyrocketing inequality. It shows how taxing the rich can set us clearly on the path to a more equal, sustainable world free of poverty.

The report explores how taxing the rich claws back elite power and reduces not just economic inequality, but racial, gender and colonial inequalities, too. The report lays out how much tax the richest should pay, and the practical, tried and tested ways in which governments can raise such taxation.

Time to Tax the Rich

Greater taxation of rich people is not the only answer to the inequality crisis, but it is a fundamental part of it. It is time for governments to shake off decades of failed ideology and rich elite influence, and to do the right thing: tax the rich.

Governments must use the tax tools at their disposal to turn back this tide of inequality, following these steps to a more equal world:

1. Introduce one-off solidarity wealth taxes and corporate windfall taxes as well as much higher taxes on dividend pay-outs to stop crisis profiteering.

2. Permanently increase taxes on the richest 1%, for example to a minimum of 60% of their income from both labour and capital, with higher rates for multi-millionaires and billionaires.

3. Tax the wealth of the super-rich at rates high enough to systematically reduce extreme wealth and lower power concentration and inequality.

The Inequality Explosion

In recent decades, economic inequality has soared to extreme and dangerous levels. It has become an existential threat to our societies, crippling our ability to end poverty, corroding politics and putting the future of our planet in peril. Crisis after crisis has driven an ever-greater wedge between the haves and the have-nots, exposing the consequences of entrenched inequalities. Most recently, the COVID-19 pandemic and runaway food and fuel prices have led to poverty and a cost-of-living crisis for the many, while driving relentless wealth and income growth for the richest. Governments have a responsibility for this inequality explosion.

Soaring Wealth for the Few

Ten years ago, Oxfam first sounded the alarm at the Davos World Economic Forum – a meeting of the world’s wealthy elite – about extreme levels of inequality. Back then, the income and wealth of the world’s richest people were shooting up as they captured post-financial-crisis growth, in a context of austerity and economic hardship for the majority of people. Today, the richest are benefiting from a global pandemic followed by a war-fuelled cost-of-living crisis that the world’s richest are benefiting from.

In the last 10 years, billionaires have doubled their wealth, making nearly six times more than the increase in wealth seen by the bottom 50%.

For every $100 of wealth created in the last 10 years, $54.40 went to the top 1% and $0.70 went to the bottom 50%.

Mounting Crises for the Poorest People

While the wealthiest people and companies continue to thrive, recent crises have caused huge setbacks in the fight against poverty and hunger, cuts to jobs and wages, and a fiscal squeeze that threatens the lives and livelihoods of the world’s poorest people. Now, in the midst of a cost-of-living crisis, it is clear that the world cannot continue on this trajectory.

One constant of the last two-and-a-half decades has been the steady decline in extreme poverty. This progress has now ground to a halt – the government responses to the pandemic, and food and energy crises, have undermined hard-won gains in the fight against poverty. For the first time in 25 years, extreme wealth and extreme poverty have sharply increased simultaneously.

Fighting Inequality by Taxing the Wealthiest

Tax policy is one of the most important levers that a government has at its disposal to reduce economic inequality. Historically, taxation of the wealthiest has helped to create more equal societies and prevent an extreme gulf emerging between the haves and the have-nots. However, in the decades prior to the pandemic, progressive taxation collapsed. The wealthiest individuals and companies were favoured with low-tax regimes, while taxes on billions of ordinary citizens increased.

As soon as you join the ranks of the super-wealthy, you have a whole range of exciting tools to avoid paying tax and to help you and your family get even wealthier! You may consider the ‘buy, borrow, die’ strategy of income tax avoidance. First, buy an asset, like a company. But instead of paying yourself a salary from the company, which you would have to pay tax on, why not borrow money from a bank or other third-party lender against that asset? Because loans are tax-free! Also, it is easy for you to access credit, because you are already very rich.

Growing Support for Taxing the Wealthy

Public polling consistently finds that a majority of people support increased taxation of the wealthy; this is the case across many countries. Polling in the US shows that in the last decade, for the first time, the majority of Americans have said they think that their ‘government should redistribute wealth by heavy taxes on the rich’.

An estimated 80% of Indian citizens are in favour of increasing taxes on the rich, and 85% of Brazilians are in favour of increasing taxes on the super-rich to finance essential services. In Africa, 69% of people polled across 34 countries agreed that it ‘is fair to tax rich people at a higher rate than ordinary people in order to fund government programs to benefit the poor’.

How Countries Can Make the Wealthiest Pay More Tax

The report proposes how much tax the richest should pay as a proportion of their incomes, and outlines some of the most practical and common-sense ways in which governments around the world – including low-income countries – can choose to act now to increase taxation of the wealthiest people. We look at different taxes on income and wealth.

There is a strong case for governments to build on the wave of progressive taxes in various countries and usher in a broader era of progressive taxation, in which the wealthiest pay their fair share.

While governments will tailor the finer details of tax rates according to their national contexts, we believe a minimum level of ambition is needed to reduce the extreme economic inequality we see today, and release much needed resources to fight inequality and fund the green transition.

Oxfam calls for progressive taxation on the incomes of the wealthiest, including income from: 1. Personal income; 2. Capital gains; and 3. Unrealized capital gains. The idea of income is central to understanding why the super-rich pay less tax than the rest of us.

Normally, people earn most of their income through employment or self-employment; in other words, through their own personal effort. The super-rich derive most of their income from financial flows that arise from their ownership of assets like land, property, companies and stocks.

Through interest, dividends and gains in the value of the capital they own, the rich can earn income without lifting a finger, and this unearned income tends to be taxed at a far lower rate than wages and salaries.

Oxfam calls for progressive taxation on holdings of wealth – in other words, taxing the fortunes of the rich. We look at three key taxes that could be used to do this:

1. Property tax.

2. Inheritance tax.

3. Net wealth tax.

Oxfam calls on governments and international institutions to work together to urgently implement the following three sets of recommendations:

One-off Solidarity Wealth and Windfall Taxes

Today, billions of ordinary people are suffering the consequences of multiple crises, while the wealthiest people and companies continue to grow richer. Governments could raise vital revenue, and prevent the richest further profiting from crisis, by implementing one-off taxes on excessive profits and wealth. This would mean:

• Taxing the windfall profits of corporations during crises, with an ambitious and sector-wide windfall tax.

• Urgently taxing dividend pay-outs to wealthy stockholders at much higher rates.

• Tax on income from dividends should be at least as high as tax on income from wages.

• Implementing one-off solidarity wealth taxes on the top 1%.

Increase Taxes on the Richest 1%

In addition to one-off solidarity taxes on the wealthiest, governments must ensure that the richest 1% are permanently paying significantly more of their income from labour and capital in tax, and that multi-millionaires and billionaires pay higher rates still.

• Taxing capital gains – income from stocks, shares, rent and other revenue that the rich disproportionately rely on – at rates that are at least as high as those on income from work, and preferably higher.

• Introducing top rates of tax (marginal rates) of at least 75% on all personal income for the highest earners (e.g. for those making $5 million a year, or the top 0.1%) to discourage sky-high executive pay.

• Removing tax exemptions and loopholes in tax systems that primarily benefit the rich.