'Tax the rich': Can it really solve the inequality crisis?
An article titled "Tax the rich" published in this daily on February 22, highlighted the astonishing rise in wealth and income inequality that we've witnessed globally in recent years, and rightly recognised it as a crisis that deserves the most urgent attention. Among many reasons for urgency is the fact that the overwhelming disparity—besides being morally wrong—has now reached a point where it may seriously start to destabilise society. But, what I must strongly disagree with is the antidote proposed in the article (borrowed from Dutch historian Rutger Bregman) which was: "tax the rich, all the rest is bullsh*t." As although the simplest solution may in many cases be the best solution, this, is not one of them.
Concerning inequality, we now have hundreds of organisations providing exhaustive data that covers the topic from many different angles. I will pick one from Oxfam's report titled, "5 shocking facts about extreme global inequality and how to even it up", for a specific reason. According to the report, 26 people last year "owned the same [wealth] as the 3.8 billion people who make up the poorest half of humanity." Those who've followed similar reports from previous years, or reports varying only in terms of their geographic scope or focus, will notice a similar pattern among them. That is, less than a few hundred people (and sometimes much less) at the top have owned as much wealth as everyone else for some time now—with the number at the top shrinking every year. This is an extremely important point. It tells us one reason the wealth gap between the "rich" and the poor has been widening according to data, is because of the rapid increase in disparity between the "super-rich" and everyone else.
Because the super rich, who are outliers on the rich end of the spectrum, are increasingly skewing the entire wealth share towards the rich side of the scale through the force of their accumulation alone, a surface analysis may create the impression that everyone on the "richer" side of the scale are now wealthier, which may or may not be true. Does this mean that the problem of growing inequality is actually not as big a deal? Absolutely not. What it means is that the real, or much bigger problem, is the growing disparity between the super-rich and everyone else—i.e., between the top 0.1 percent (rather than the commonly believed 1 percent) and the rest.
The reason why increasing taxes on the rich solves nothing is because the small "rich" populations (2-5 percent) of most countries (no data for Bangladesh was available) already pay the overwhelming majority of all taxes (30-45 percent). Whereas the "super-rich", whose wealth accumulation is what's truly driving the inequality growth, pay little or nothing. As Warren Buffet once famously said in an interview with NBC's Tom Brokaw, he paid less taxes compared to all his employees including the receptionist.
The reason why most people can't wrap their heads around this is because of the neoliberal economic mumbo-jumbo that large parts of the academia and media now promote. But if we look back to classical economists such as Adam Smith, the one commonality that we'd find in their doctrines is the differentiation between "earned income"—wages and profits—and "unearned income"—rents, interest and the more modern phenomenon of capital gains through share buybacks and speculation.
According to classical economists, "earned income", that is accumulation through means of production which is what creates real wealth, should not be highly taxed; whereas "unearned income", that is accumulation through non-productive activities that don't create any real wealth—but simply parasites off it—should be taxed heavily. What we have today is the opposite, because the parasitic class (super-rich) has successfully convinced the host (masses) that it is the parasite that is the key to the host's survival—when reality is the other way around. With the end result being that we ourselves now ask governments to "intervene more and more" and increase taxes for the real wealth producers of society; while the "super-rich" don't have to pay those taxes, as the vast majority of their wealth accumulation comes by way of "unearned income". And also because they are involved in "asset hiding" using the secretive global offshore banking industry.
And what is worse is that in recent times, their speculative activities too have been financed by the real wealth producers; because of governments bailing them out using taxpayer's money. If we look at the US for example, we'll discover that it was people like Warren Buffet who were the biggest beneficiaries of its bailout programme—being the largest shareholders of institutions that the US government selectively bailed out. And that those institutions had used the majority of that money to either give their CEO's increased bonuses, or buy-back their own shares in record numbers to push share prices up and allow their large super-rich shareholders to make unbelievable amounts of capital gains by selling them at overvalued prices.
Although such activities don't produce any real wealth, in the age of neoliberal economics, the "financial value" of these transactions are still added to GDP calculation, allowing governments to boast how they've managed to increase the wealth generation of their respective nations. Unfortunately, the academia and media at large have either failed to understand this, or have lacked the courage to challenge and ask people like former Goldman Sach's CEO Lloyd Blankfein when he ridiculously said that Goldman employees received the highest salaries because they are the most "productive", what exactly is it that they produce?
Meanwhile, as more and more resources are diverted from productive to non-productive activities, unemployment keeps rising—further increasing inequality—as businesses no longer need to employ people and produce anything to make profits; they can simply do so by means of financial manipulation and government wealth transfers. And what this has done is slowly drive the real creators of wealth (who earned profits through production instead of government handouts) out of business, allowing the super-rich and their friends to "monopolise" increasing numbers of markets—pushing real wages down for workers. And the primary way they've done this is by monopolising control over what policies governments set.
The solution, therefore, is not more government interventionism (on behalf of the super rich) and higher taxes (for everyone else), but only limited government interventions aimed at achieving select goals that would benefit the many.
Ultimately, the realisation that we must come to, is that governments are struggling to provide economic and social support to the poor not because of a shortage of tax revenues as they've repeatedly claimed; but because they've been using the vast majority of revenues to provide welfare to the super-rich—through bailouts, for example.
And that, absolutely must end, if inequality is to be stopped from increasing further.
Eresh Omar Jamal is a member of the editorial team at The Daily Star. His Twitter handle is: @EreshOmarJamal