Rich people can be generous philanthropists but they don’t often volunteer to pay higher taxes.
However, informal groups of multimillionaires in the US and Europe are urging governments on both sides of the Atlantic to increase taxes on the wealthiest, with one association gleefully speaking of being “proud traitors to their class”.
They warn that the Covid-19 pandemic has created huge public debts and brutally deepened social inequalities that were already entrenched before the crisis struck.
“We live in a society that’s just not going in the right direction,” says Graham Hobson, a British entrepreneur, who earned his fortune after founding PhotoBox, an online photo printing company, in 2000 and selling it to a private equity firm in 2016.
“That’s become very obvious during the pandemic. There’s a whole tier of people that are considered essential workers who don’t get paid well or valued. And the gap between them and the wealthiest in society is only going to get wider.”
Liesel Pritzker Simmons, who was born into one of the US’s wealthiest families, says: “People like us have been undertaxed. Trickle-down economics has not worked. Actually, it’s done the opposite.”
Pritzker Simmons, along with her husband Ian Simmons, runs Blue Haven Initiative, an impact-investing-focused family office. She believes the US tax system is “broken” — ravaged by “decades of neoliberal economics, decades of big money in politics and corporations hoodwinking our policymakers about how they should be taxed”.
“It’s very likely the US will have a wealth tax in the future, the question is when,” says Ian Simmons, who is a big fan of the wealth tax proposed by leading Democratic Senator Elizabeth Warren (pictured top). If passed, this would levy an annual wealth tax of 2 per cent on American citizens with more than $50m, plus an extra 1 per cent on every dollar of wealth over $1bn.
The pandemic has starkly shown up the wealth differences between the haves and the have-nots. The total wealth of the world’s billionaires shot up from $8.04tn in March 2020 to $12.39tn last month — a 54 per cent rise, according to research by the Institute for Policy Studies, a progressive American think-tank, using data from Forbes, Bloomberg, and Wealth-X.
In contrast, the pandemic caused the global economy to shrink 3.5 per cent in 2020, IMF figures showed, causing huge job losses and pay cuts. While richer households saw their savings rise last year, poorer homes depleted theirs or fell into debt.
Vitor Gaspar, the IMF’s head of fiscal affairs, recently argued that the risk to “social cohesion” caused by the Covid-19 disruption means higher earners and corporations should pay more tax in a gesture of solidarity.
Hobson, Pritzker Simmons and Simmons agree. They are all members of a movement of wealthy people calling for increased taxes on the rich. The campaign operates under different banners and includes a US operation called Patriotic Millionaires. Pritzker Simmons and Simmons are members, as are Disney heir Abigail Disney and Morris Pearl, a former executive at the BlackRock asset manager. A British arm of the Patriotic Millionaires currently has six members, including Hobson.
Another group, Millionaires for Humanity, set up by Djaffar Shalchi, an Iranian-born Danish entrepreneur, has also attracted several backers. He is a real estate professional who founded and heads Arca Holding, a construction and property group.
The millionaires argue that unless governments increase wealth taxes, the legacy of the pandemic will be a greater concentration of wealth and power. The network recently pressed G20 finance leaders meeting at this month’s IMF and World Bank summits to make wealth taxes “a central pillar” of global policymaking.
Research by the IPS think-tank found that if global billionaires had paid an annual wealth tax in 2020, modelled on Warren’s proposal, they would have paid an estimated $345bn. The body estimates this would raise $4.14tn over the next decade.
Morris Pearl, chair of Patriotic Millionaires, says: “As a millionaire I know personally that our global economic system has enshrined wealth accumulation for the few — to the detriment of ordinary people in every country. We all deserve more than a pre-Covid path to recovery. Taxing wealth has to be a key, central policy for all governments if we want to build beyond the skewed and faulty economic system we previously had.”
Philanthropy or tax?
But are these millionaires anything more than a handful of mavericks? Though vocal and well-connected, it is unclear how representative these networks are of wealthier people, in volunteering for increased taxes.
Several polls done both in the US and the UK have found consistent support among the general public for increased taxes on the rich. But little has been carried out focusing on the opinions of wealthy people — an oversight Patriotic Millionaires is aiming to correct in the future. A poll by the Financial Times of its readership last year found readers, who tend to be wealthier than average, were narrowly in favour of a wealth tax.
But, crucially, readers tended to favour putting the minimum threshold at a point where they themselves would be excluded.
Also the FT readers opposed to paying such a tax raised important concerns about the difficulties of designing and implementing a levy. They argued it could have unintended consequences by penalising saving and making countries with wealth taxes uncompetitive.
The pro-tax millionaires reject such arguments against a wealth levy, including the common criticisms that it would be hard to introduce because the rich would emigrate or due to difficulties valuing assets such as art. These objections should be viewed as a “ruse”, Pritzker Simmons says.
“I promise you that anyone who falls into this wealthy category knows exactly how much money they have and where it is,” she says.
Simmons adds that concerns about people leaving the country can be addressed through the design of a wealth tax and praises the design of the “brilliant” Elizabeth Warren tax proposal. If passed it would impose a 40 per cent tax on anyone leaving the US ahead of its implementation. “You can’t just flee the country,” he says.
His wife puts it more brusquely. “You often hear these business gurus say that money isn’t the incentive, that it’s all about passion,” she says. “If you then go sneak away to the Caribbean, then I call bullshit. If that’s what motivates them, maybe they should go.”
Another criticism she dismisses is the idea that rich peoples’ philanthropy is enough of a contribution to society, despite the role played by billionaire Bill Gates and others in funding medical work. The Bill & Melinda Gates Foundation, for instance, which focuses on poverty, disease and inequity, has given $54.8bn to charitable causes since 1994.
Philanthropy should not be seen as a “get out of jail card” she counters. “It’s not a substitute for a tax code that works for everyone.”
The scale of the challenges facing the world including the recovery from Covid-19, the climate crisis and the need to fund big projects “like world broadband are not best suited to the whims of philanthropists” adds Simmons. Shalchi, founder of Millionaires for Humanity, is blunter still. “Philanthropy is not enough. Tax us,” he says.
However, Hobson has some sympathy with the view that wealthy people do not want to feel their taxes are disappearing into “a black hole, into bureaucracy or very politicised projects” and so prefer to fund causes close to their heart directly.
He fears the introduction of an annual wealth tax would be more likely to lead to people avoiding the tax, especially as the wealthy are more able to move countries. But he would be happy to pay a one-off wealth tax and also likes the idea of a voluntary pledge by wealthy people to give away some of their net assets. It would be “a great show of solidarity for the country at this time,” he says.
Some of his rich friends and associates agree. But others have been scathing in their disapproval. “Even 1 per cent would be offensive to some,” he acknowledges.
Yet he urges the wealthy to think of the bigger picture. “If you have achieved comfort or success in life, you don’t want to be constantly looking over your shoulder because so many people can’t access those things,” he says.
“This is not just about money. Stop thinking about money. This is about what kind of society you want to live in. Do you want to live in a country that’s effectively bankrupt? That can’t afford health or education?”