An international tax authority to tackle inequalities ?
Professor Photis Lysandrou is an economist and teaches at City, University of London. He calls for the creation of a powerful global tax body in order to tackle worldwide wealth inequality. In his new book, Commodity: The Global Commodity System in the 21st Century he argues that income dispersion and wealth concentration can be held responsible for the 2008 financial crisis and believes that the authority he suggests creating would help to recoup large amounts of money that are lost through tax avoidance and exil.
In the yellow vests’ movement occurring at the moment in France, claims about taxes, and tax justice more specifically, can be heard. Many defends the idea that, in a democracy, the principle of no taxation without consent should rule. Are taxes a matter of symbol as much as a matter of money?
The key issue about taxes is that, without them, we would not have government’s services and the whole range of services not provided by the private sector would not be given. Taxes are not just a symbol but are absolutely crucial in the economy. At the moment, the problem is that government’s expenditures are being constrained by the lack of tax income. We owe that to the very wealthy in society who are not paying their fair share. They are highly mobile and use tax havens or tax shelters to minimize their tax exposure and this is causing problems for governments worldwide, including in France.
Was Macron’s decision to replace the ISF (solidarity tax on wealth) with the IFI (tax on real estate) a wise, sensible move or a mistake – considering its critics argue that the ISF leads to tax exile and therefore, represents a loss of earnings?
This is a very key question. It links in with what is happening in France. The original tax was much fairer in terms of taxing all assets, including financial assets and not just property. The global super-rich hold the bulk of their assets in financial securities like shares and bonds. Hollande tried to impose that tax. However, when you’re going alone, it’s not going to work because the very rich are highly mobile. We are left with two options. One is to change the tax in the way Macron has done, in other words, in mobile assets like property. The problem with that solution is that the burden does not fall on the super-rich, the top one percent. It falls on the middle stratum and lower stratum. The alternative option, which I argue for in my book, is that we need a global tax authority to coordinate taxes among governments in general, on one hand, and, on the other hand, to implement a tax on the wealthy.
You don’t believe in trickle-down theory (taxes on companies and the wealth should be reduced in order to stimulate investment and benefit society), do you?
Not at all. In 2015, the world’s 145 000 richest individuals, they are called ultra high-net-worth individuals [those with net assets of more than 30 million dollars] held assets in that year of 21 trillion. We are talking about super rich, including Donald Trump, Bill Gates, Warren Buffet who are so stupendously rich, if we can tax even a small percentage of their income, it would generate billions that could be used to help third-world economies to cop with climate change and so on.
You claim that wealth inequality caused by this system will lead to repeated financial crises? Unlike Thomas Piketty who does not identify wealth concentration as the key cause of 2008 financial crisis, you do. Can you explain to what extent this is related?
Piketty is wrong. In his book, Capital in the Twenty-First Century, he was very correct to call for a global wealth tax, but Thomas Piketty could only give a moral, not an economic case for it. The reason is he could not show how global inequality, in general, and wealth concentration in particular were instrumental in the financial crisis. In his 700-page-long book, only two pages are devoted to the financial crisis. In those two pages, he states that inequality was not a primary or even the sole cause of the crisis. I disagree. The two sides of inequality, income dispersion and wealth concentration, provided the framework for the crisis.
What is the link between these two sides of inequality and the 2008 crisis we usually refer to as the “subprime mortgage crisis”?
At the heart of the crisis were CDOs (Collateralized Debt Obligations), toxic securities, backed by subprime mortgage loans. On the one hand, the reason you had to bring in subprime borrowers [persons considered to have a high credit risk for a lender] was because there were not enough ordinary prime borrowers taking out mortgage loans. Because of wage stagnation, the number of ordinary borrowers is limited which encouraged the banking system to bring in subprime borrowers to create mortgage loans – which was the raw material needed for the CDOs [responsible for the crisis]. That’s on the supply side. In other words: stagnant wages, low income, job insecurity. On the demand’s side of the CDOs, the global rich played a key role because most of their assets are in financial securities, including bonds [that you can find in CDOs]. How did the financial system react to the problem of yields? They had to create extra bonds. And the rich were there, directly and indirectly, by the Hedge funds. Hedge funds held 46% of CDOS in 2007. Inequality from both sides was key to the financial crisis.
What would be the functions of the authority you are suggesting creating? Don’t companies have a key role to play in any international tax system and effort?
What I’m arguing is that a global tax authority, composed of tax experts drawn from the world’s 200 countries [195 according to the United-Nations], should have two functions. On the one hand: national tax regime coordination. At the moment, global tax affairs are in a chaotic state. Countries are operating different tax systems and, in many jurisdictions, like the Bahamas, Caiman Islands, Luxembourg, there is hardly any tax system in place at all. So what we need is a global co-ordinational tax regime to prevent a race to the bottom, including corporate taxes which are going down. If you just take the EU, 20 years ago the average corporate tax was 25%. Now, across the EU is 21%. And one of Macron’s measure is to bring the French corporate tax rate down gradually from 33% to 25% by 2022. On the other hand, the second function is to coordinate a tax on the ultra-rich starting with, for reasons of expediency and practicality, the top 145 000 world’s super-rich. We know who they are. They are very good at publicising their wealth in Forbes magazine Let’s start there!
Instead of creating a new authority, why don’t we invest international organisations like the UN with new powers to enforce a better wealth redistribution internationally?
I’m very happy if we do that but in the United Nations, 5 countries have the right to veto any major decision. Whether we have a global tax authority, a separate authority or through the United-Nations, it comes down to the same thing. There will be resistance from the world’s rich who, at the moment, are in key positions of power. In America, Donald Trump is a billionaire President. In Russia, Putin is surrounded by oligarchs. Across the world, the super-rich are either directly or indirectly in political control. Therefore, whatever we do, whichever route, it’s not going to be easy. I’m saying we have to put this demand on the agenda.
This past decade, there seem to have been a sense of fear for countries to lose their national sovereignty. Wouldn’t your proposal be a threat to it and, by extension, the reason it might never see the light of day?
When Macron and his government repealed the ISF and replaced it with the IFI, what was his number-1 reason? “We taxed the rich under Hollande and they simply left”. Any country going in alone is not going to succeed. When countries like Ireland say: “Do not interfere with my corporate tax rate [which is now 12.5%] because it’s my sovereign right”, what we have to say is that one country’s sovereignty undermines other countries’ sovereignty in the era of high mobility of the rich. If we are going to have sovereignty collectively, we need to pull that sovereignty in order to tackle with this huge problem; corporations like Amazon, Facebook are paying very little in taxes. France, according to the statistics over the recent years, has lost 66 000 millionaires, who simply left France, not paying anything.
Regarding all the disagreements that can occur, even within the EU that notably lacks tax coordination, how do you expect countries to agree on a system, to reach a consensus to deal with inequalities?
If you take the EU, you have coordination right across every issue and in the Euro zone, even on monetary policy. The one area where there is minimum agreement on coordination is taxes. And here we come again on the question of sovereignty. What’s happening now is, in the last 20, 30 years with financialization and globalisation, inequality has reached obscene levels. Wealth concentration is enormous and corporations and the rich are not paying they share of tax. So we have a new problem on the agenda which requires a new approach. The rich will not pay and what you are getting is austerity. Governments are cutting everything. In the UK, they are cutting on police services, health and mental health services. How far can we go? And what’s happening? The rise of populism and these frustrations, the demonstrations you see in France, the yellow jackets. This is the expression of not just anger but frustration at the stagnant wages, the government’s expenditures. When are we going to do something?
This is not only about creating “an opening initiative that could lead to the creation of others” as you said, but considering the system from another perspective, isn’t it?
At the moment, we have 200 independent nations and states, keeping borders and law. But on the other side of the equation we have a single global commodity market system. This system, on the one hand, generates progress on the technical, medical or scientific fronts but, on the other hand, it only promotes continual inequality to the point where we can not survive in such a world with the rising populism, or people turning against people. We have to have a set of initiatives that controls this global commodity system and its operation. I argue that the tax authority would be a first step of actual control of the system. So far, we only have international bodies that do not control the system but simply facilitate its operation. For example, the World Trade Organisation do not intervene to control the vast inequalities that the system can generate. Let’s start with one initiative to get people around the world to organize. Why? Because the world’s richest have only one overriding priority: “Don’t tax my world”. When you come to the world’s population, we have hundreds of priorities and the result is we never get anywhere. Let’s start with one overriding priority, just like the rich have theirs. Let’s start with the tax authority and then down the line, we will look at other initiatives that can deal with the deforestation, the destruction of the Amazonian forest, plastic in the oceans and so on. And so on.