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Sensemaker: Wealth tax

Sensemaker: Wealth tax

What just happened

Long stories short

  • More than 500 police officers searched the newsroom of Apple Daily, a popular Hong Kong newspaper, and arrested its editor along with four executives under China’s national security law.
  • An ongoing public inquiry into the Manchester Arena attack in May 2017 found there were six missed opportunities to prevent or minimise suicide bomber Salman Abedi’s “devastating impact”.
  • The Liberal Democrats pulled off a surprise win in the Chesham and Amersham by-election yesterday. The Tories had held the seat since its creation in 1974.

Wealth tax

Our Sensemaker on an unprecedented leak from the Internal Revenue Service, American myth, elicited a number of emails from readers. It was smart and well-informed feedback that, broadly, made two points:

  • The 25 richest billionaires, including Jeff Bezos, Elon Musk, and Michael Bloomberg, paid little to no tax despite rising fortunes because almost all their compensation was in stocks, which aren’t taxed until they’re sold. As one reader wrote, it’s obvious that they’d take advantage of this loophole – and “I’ll bet you would, too, in their circumstances!”
  • More pointedly, the same reader wrote that simply asserting that some of the wealthiest people in the world pay almost no tax advances nothing. Instead of making assertions of underpayment, journalists should come up with some useful suggestions.

The leak has renewed calls for a wealth tax. It would be the most useful way of addressing underpayment. But first, it’s worth making one point about compensation in stocks as opposed to salary. It may seem unfair to tax an asset whose value has increased but that hasn’t been sold to realise the gains. But the thing is, the gains are realised.

Billionaires borrow money against their stocks. Larry Ellison, the founder and former chief executive of Oracle, took out a $10 billion credit line against his shares in the company, effectively an untaxed salary made possible by massive wealth.

“The ultra-wealthy are completely outside of the system,” said Jesse Eisinger from newsroom ProPublica, which received the leak, “and the question is whether that system is working.”

So, a wealth tax. It exists in various forms in different countries. Spain’s “Patrimonio” is a direct tax on individuals’ net worth; Italy levies a direct tax on real assets held overseas; Belgium on financial securities that add up to more than €0.5m; France and Canada both have one on real estate – in addition to regular property taxes. Council tax in the UK, which is levied on residents’ property values as estimated in 1991, is a form of wealth tax – when the property is owned rather than rented.

But the clamour is now for a broad-based wealth tax. One that’s not specific to an asset (say, not just real estate) and that has a high exemption threshold (say, only millionaires). It would require regular assessments of wealth and its administration costs will be high.

Even after costs, one estimate for the UK predicts that a wealth tax starting above £2 million at a rate of 0.6 per cent can raise £10 billion. That’s about 16 per cent of the cost of the government’s furlough scheme during the Covid pandemic.

A higher rate at a higher threshold would also work. The 10 richest people saw their fortunes surge by $540 billion during the pandemic. They include Bezos, Musk, and Mark Zuckerberg. But so far, going by last weekend’s G7 summit, it’s proved easier to plan taxes on their companies than their ownership.

New things technology, science, engineering

Bad influencers
Four influencers – Chloe Khan, Jodie Marsh, Chloe Ferry, and Lucy Mecklenburgh – were named by the UK Advertising Standards Authority (ASA) as having failed to disclose when their Instagram posts were advertisements. The ASA had already warned them about breaking advertising rules and, as part of its new policy, now lists them on its website as repeat rule-breakers. They will be listed for three months and subjected to “a period of enhanced monitoring spot checks”, making the ASA one of their many keen followers. “It’s not difficult”, ASA chief Guy Parker said. “Be upfront and clear when posts and stories are ads.” Marsh said she was only using the nutritional products her own business made, which are part of her normal life. “They are basically saying I can’t promote my own product,” she told the BBC. “I feel like I don’t have freedom of speech.”

The 100-year life health, education, living, public poliCY

Cheap policy
At the height of the Covid pandemic, the Treasury instructed senior government officials to hide from the public an obscure provision in the furlough scheme that could be used to access self-isolation sick pay. The revelation comes from emails leaked to Politico, which wrote that the story raises questions over whether the government did enough to support people in isolation. In the emails, civil servants express concern that, without furlough support for self-isolation, people wouldn’t take Covid tests “due to risk of loss of income”. Self-isolation was central to the government’s virus containment strategy, so the Treasury’s approach feels like saving pennies to lose pounds.

Our planet environment, natural resources, geopolitics

In case one crisis isn’t enough for the world, here’s another: drought. The UN Office for Disaster Risk Reduction released a report that describes drought as a coming global crisis. It’s already widespread. It costs €9 billion a year in the EU, and $6 billion a year in the US. And it will get worse. The report predicts that most of the world will be living with water stress in the near future, land degradation will worsen, and agricultural yields will drop, leading to food shortages. “Drought is on the verge of becoming the next pandemic,” said Mami Mizutori, the UN secretary general’s special representative for disaster risk reduction, “and there is no vaccine to cure it”. No vaccine, but good water and land management would help.

Belonging identity, society, beliefs, countries

Jailed children

The British government announced the removal of all children from a privately-run youth jail because of safety concerns. The announcement comes after it emerged that children at Rainsbrook Secure Training Centre in Warwickshire were being locked up for more than 23 hours a day. The centre held up to 87 children aged between 12 and 17 who were either on remand from the courts or serving a custodial sentence. Some newly admitted children, as young as 15, were locked in their bedrooms for 14 days and allowed out for only 30 minutes. The government is now looking for alternative accommodation for the 33 removed children.

Wealth investment, fairness, prosperity

Young money
Banks in Asia are struggling to retain junior staff. Analysts and associates, the usual first and second ranks in investment banks, are rebelling against the industry’s punishing working culture. Banks raised salaries, sometimes up to 30 per cent, and promised quicker promotions. But the exodus continued. The same problem exists in London and New York, but is more pronounced in Asia where new fintech firms are sprouting to serve a new class of ultra-wealthy individuals. Jonathan Lam, 30, quit HSBC’s investment arm in Hong Kong to co-found a home concierge company, Butler. “With banking you can make good money in the short term, but with startups, if you grind it through, it will lead to big fortunes,” Lam told Bloomberg ($).

Thanks for reading, and please share this around.

Paul Caruana Galizia

Sophia Sun

Photographs by Getty Images, chloe.khan/Instagram

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