Taking a grim view of the ongoing global economic downturn, the Bank of International Settlements has advised the governments to raise taxes or cut public spending after central banks kept interest rates too low for too long in the face of higher inflation.
Closing the gap between government income and expenditure would “calm down inflation”, stated the Basel-based organisation.
Talking about raising taxes, should the rich be taxed more? While the answer may get an overwhelming ‘no’ among the community of the High-Net-Worth-Individuals (HNWIs), going by one’s correct imagination, this article will talk about a different reality.
The alternate reality
Gemma McGough, despite being unemployed till 2017, joined the United Kingdom’s top 1% and became a multimillionaire by selling her business, Product Compliance Specialists. She had a job where she would never have to work again.
Then she read Naomi Klein’s book, “This Changes Everything,” which explores how capitalism affects the environment. It was a significant change in her thinking.
She established ‘Eleos Compliance’ in 2019, based on the B Corp values of transparency and social and environmental accountability. Despite taking a salary, most of her income now comes from investments, bonds, and rental properties.
McGough examined the tax she was paying on her salary vs. the lower rates on income from the sale of assets after finding herself suddenly inundated with alarmist mailings from accountants.
She came to two conclusions: first, the country’s tax system was unfair, and second, she might be making more of a contribution. She had put in a lot of labour over 20 years to develop her first firm, but many others have put in similar amounts of effort only to be left with “a mortgage and many more hours to work.”
Since 2020, McGough and her husband have donated about £400,000 ($509,946) for reforestation, rainforest preservation, and strategic land purchases.
In 2021, she joined Patriotic Millionaires UK, a club of multimillionaires and billionaires who support higher taxes on the wealthy. McGough was one of four British “wealth-holders” to do so.
McGough is a founder member of the UK arm of the group, which has expanded to 20 members since its establishment in the US in 2010. The organization now has 240 members in the US. They participate in regular meetings, use WhatsApp to organize media activities, and speak out in favour of net wealth taxes at parliamentary gatherings. There is a mix of founders and CEOs, uneasy heirs, and former financiers like Gary Stevenson, a former Citibank trader who now raises awareness of inequality.
They bring together relationships, knowledge of finances and taxes, position, access, and a few well-known figures, notably the Disney family fortune. The recent “Cost of Extreme Wealth” open letter, presented to the World Economic Forum in January 2023, included the signature of actor Mark Ruffalo too. Former British engineer and consultant Phil White added a tried-and-true political strategy to his Davos trip by holding up a cardboard sign that read, “Tax the Rich.”
Additionally, there is a growing level of coordination with ‘Millionaires for Humanity’ in Copenhagen and Taxmenow in Germany, Austria, and Switzerland.
The patriotic millionaires are notable on both sides of the Atlantic for being unusually outspoken and forthright; US chair Morris Pearl, a former BlackRock MD, has discussed how COVID-19 increased his wealth and how he doesn’t check his bank balance because he doesn’t need to.
“When you’ve won the game, why say anything?” McGough stated while interacting with Wired UK. She may be more inclined to feel like she has “enough” now because of her “hard-up” working-class upbringing.
When she was 16 years old, she quit school to start her first job and founded her first business with her ex-husband using “two laptops and a list of contacts.” Her RF compliance business was in a growing sector at the right time, and she was able to hire people from the European Union, which helped her succeed.
The Patriotic Millionaires are keen to highlight the economic case that wealth taxes could promote stability and support both a healthy, educated workforce and a middle class of customers with disposable income, so paying more tax may benefit wealthy business people. But for McGough, it’s about fairness and common sense in a time of growing inequality and declining public services.
The richest 1% of British citizens outpaces the aggregate wealth of the poorest 70%. She argues that if you have so much money that you no longer require a functional society that is a problem in her eyes.
How much tax should be levied?
With a dash of pragmatism, the organization bases its suggestions on studies into wealth taxes and inequality. McGough asserts that inheritance taxes will always remain the same. According to research by the Wealth Tax Commission at the LSE and the University of Warwick, the group is advocating for an annual wealth tax in the UK of 1-2% on fortunes above £10 million, which would touch about 20,000 people but potentially bring in up to £22 billion annually. That would almost be sufficient to provide a salary boost in line with inflation for the whole public sector.
Although wealth taxes are familiar, many of these levies were eliminated in the 1980s and 1990s. Today, just four European nations—Spain, Norway, Switzerland, and Belgium—collect net wealth taxes, with additional levies on specific assets in France and Italy.
The arguments against a wealth tax range from the statement “I pay enough already,” which McGough claims she has heard a lot of, to concerns about the expense of administration, the possibility of capital flight, and the potential rise in tax evasion and avoidance. In the 1970s, Harold Wilson’s government could not enact a wealth tax in the UK due to administrative difficulties and concerns about a market confidence crisis.
Regarding capital flight, it is acknowledged that some affluent people may relocate their wealth due to tax increases. However, according to Cristobal Young, an assistant professor of sociology at Stanford University, the majority would likely continue to exist. The remaining 95% of billionaires reside in the nation where they were born, received their education, or established their firm, as opposed to the 5% who lead a transnational lifestyle between London, Switzerland, and tropical tax havens.
A new class of conscientious multimillionaires is working with Tax Justice UK to use their connections to promote new wealth taxes to all-party parliamentary parties directly. Even though the group is generally opposed to this form of impact of wealth on politics through private lobbying and its erosion of trust in democracy, events focused on tax, investments, and social mobility are scheduled for 2023. The invitations to Westminster are considered a necessary evil for the time being.
Because the Patriotic Millionaires are wealthy, their argument for taxing the wealthy may be persuasive. In 2021, researchers from King’s College London and the University of St. Gallen Switzerland, examined data on wealth taxes from 1880 onward in 45 nations. They discovered that the forces of industrialization and democracy and the start of wars do not frequently hasten the implementation of wealth taxes.
Instead, they had primarily served as an emergency tax when nations experienced the shock of an economic downturn. Similar to McGough’s business success, everything may depend on timing.