Should We Tax The Rich

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It is always intriguing when very rich people envy even richer people but jealousy is never a good foundation for tax policy.
Recent discussions among the very rich G20 countries have come up with the idea of a global tax on the super-rich.
In principle this sounds like a good start in the Robin Hood world of redistribution in the name of social equity.
According to Altrata’s World Ultra Wealth 2023 report there were 395,070 ultra-wealthy individuals worldwide in 2022 with total net wealth of US$45.4 trillion.
A 1% tax on this would yield US$454 billion which is more than the entire GDP of Malaysia.
Going down to basics, there is a difference between a wealth tax and an income tax.
So while the wealth tax might raise US$454 billion from the stock of money, property and assets, a tax on the flow of income from that wealth could raise as little as US$22.7 billion.
Put it another way, the wealth tax would raise US$56 for each of the 8.1 billion people on the planet and the income tax would raise less than US$3 each per year.


In both cases the redistribution per capita would be meaningless in addressing wealth disparity and inequality around the world so the revenue would have to be raised and held centrally or by a global government.
Here is the main problem: who will raise the tax and who will spend the revenues?
Major economies like the US and Germany have already expressed opposition to a global wealth tax.
Their main objections are obvious. Collectively, North America and Europe have 62% of ultra-high net worth (UHNW) individuals.
Since the G20 is already divided on geopolitical issues like Israel-Palestine and Russia-Ukraine it is unrealistic that they would come to a consensus on a global wealth tax raised and spent by a global government.
There have already been negotiations to transfer the global tax discussions from the Organisation for Economic Cooperation and Development (OECD) dominated by the rich countries to the United Nations with a higher representation of poorer countries in the Global South.
This would be a significant shift in the landscape of international policy and the balance of power.
Unless all 195 countries around the world imposed the same tax in the same way, tax competition would see huge shifts in wealth holdings to zero-tax countries.
Many small Caribbean islands or principalities in Europe already have this status.
Some argue that taxing the wealthy could slow down investment and innovation but this may not happen if there were simply a shift in where the money was held.
The main practical challenge in implementing a global wealth tax is tax evasion and avoidance especially given the diverse tax policies and leaky implementation systems of different countries.
One way to overcome this is to tax electronic payments through banks and financial systems.
An e-payments tax (EPT) has the advantage of significantly cutting tax evasion through the blockchain records of transactions on both income and wealth.
The super-rich cannot avoid it so easily and the US$454 billion can be raised with a tiny tax of less than 1%.
Bringing it back home, what impact would a global wealth tax have on Malaysia?
Malaysia has very few super-rich. According to the Forbes List the wealthiest Malaysians had a measly US$84.3 billion (RM375 billion) in assets.
Just to pay civil service pensions the wealth tax would have to be 8%-9%.
Surely the pips will squeak at that rate and the money would be transferred out pretty quickly.
So for Malaysia to benefit, an e-payments tax would be better to create a tax haven at the centre of Asean. - FMT
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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