In a time of unprecedented wealth, poverty still plagues the planet. Despite enormous strides in health care, education and total wealth over the last millennium, modern society is as unequal as feudal Europe. As transnational companies (TNCs) and the super-rich accrue vast fortunes, in 2022, 648 million people lived in extreme poverty, surviving on less than $2.15 per day. Without fair taxes, global inequality increases and poverty progress slows.
Between 1990 and 2019, the global extreme poverty rate shrank from 37.8% to 8.4%. However, in the wake of the global pandemic, progress toward ending poverty reversed for the first time in 25 years. In 2020, global extreme poverty rates rose to 9.3%. Since 2020, the wealthiest 1% of people have accumulated 63% of all newly created wealth.
Further, as billionaire fortunes raise a cumulative interest of $2.7 billion per day, the last year saw inflation rates surpass salary growth for 1.7 billion workers. Only half of all billionaire fortunes are subject to inheritance tax, with “tax havens” holding “8% of the world’s household financial wealth,” Oxfam highlights. Additionally, major “food and energy companies more than doubled their profits in 2022,” during the same year that saw even the developed world choose between a full stomach and a warm home, Oxfam reports.
The 5% Tax
In January 2023, Oxfam published a paper titled “Survival of the Richest,” which highlights the broadening wealth gap between the rich and the deprived and suggests that the world reconsiders the meaning of fair taxes. The crux of this paper is a simple idea. Oxfam proposes that a 5% tax apply unilaterally to all multi-millionaires and billionaires. A humble 5% tax would accumulate $1.7 trillion per annum: sufficient funds to implement a comprehensive strategy to eliminate world hunger and end poverty for 2 billion people.
Amid escalating inequality, attitudes regarding what constitutes fair taxes are changing. For the first time in history, most Americans agree with the statement: “the government should redistribute wealth by heavy taxes on the rich.” About 80% of Indians and 85% of Brazilians also favor higher, fair taxes for the super-rich.
In October 2022, proposed tax cuts for large corporations in the U.K. led to a “U-turn” in the prime minister’s plans and even her resignation. In the same year, more than 100 millionaires signed a charter demanding higher tax burdens on the rich as a way to resolve global poverty. Even those who benefit from the current economic system agree that it causes unfair economic inequality.
Tax expert Chenai C. Mukumba says in her foreword introducing the Oxfam paper, “Inequality is one of the most important issues today and, left unabated, has the potential to exacerbate many of the social cleavages that exist within our society.”
She says further, “Addressing it, therefore, should be at the forefront of our policy agendas and this report presents an important but insufficiently explored way of doing just that: taxing the rich. Taxes that target the rich allow tax to play its redistributive function by constraining the growth of income.”
Colombia’s Tax Revolution
Echoing Mukumba, Colombia’s Minister of Finance and Public Credit José Antonio Ocampo proclaims in his foreword that “taxing the wealthiest is no longer an option — it’s a must. Global inequality has exploded and there is no better way to tackle inequality than by redistributing wealth.”
Colombia stood as the seventh most economically unequal nation on the planet in 2020 but Ocampo aims to change this. “By abolishing decades-long tax privileges and loopholes that benefit only the richest, there will be more money to invest in free, quality public services like education and health care. To invest in agriculture. In climate and nature. And in peace.” He says further, “This is not something symbolic; it’s not just talk about increasing taxes on the rich to support the poor. It’s [a] historic shift. And it’s long overdue…Ordinary Colombians have had enough and demanded change.”
In keeping with Ocampo’s aspirations, Colombia passed the Tax Reform Law (TRL) on January 1, 2023. In 2022, Colombia temporarily raised its corporation tax to 35%, the third highest rate in the world. The new TRL enshrines the 35% corporation tax in the Colombian legislature. The TRL also repealed the Mega Investment regime law, which reduced income tax to 27% for foreign investors. Most pertinently, TRL introduces Oxfam’s proposed 5% millionaire tax, which supplements the new 35% corporation tax. Although Oxfam’s paper only offers a fledgling suggestion, the ripples of its ideas are already making waves in the Colombian tax structure.
Fair Taxes to End Poverty
Since 1980, inheritance and income taxes have fallen sharply for the super-rich. With global cohesion and cooperation, the 5% income tax could eradicate poverty and hunger in a year at the cost of returning billionaires to the levels of wealth they held in 2012, which is still a tremendous imbalance in affluence.
The world is beginning to agree that “inequality is not inevitable,” as Oxfam highlights. Colombia has proven that fair taxes are a possibility. Those who wish to end inequality and poverty can take heart that the world is not only listening but beginning to change.
– David Smith
Photo: Wikipedia Commons