Opinion: World will plunge into chaos if exorbitant profits are not taxed

It happened again. Thousands of supporters of Brazil’s former president, Jair Bolsonaro, stormed the country’s government buildings on January 8 in protest against their newly sworn in president. The riots occurred nearly two years after the attack on the United States Capitol by supporters of outgoing President Donald Trump.

The similarities are striking: the violence and vulgarity of the attacks against democratic institutions and the aim of sowing chaos, claiming to be law and order. In both cases, political leaders questioned the election results and, in general, the values ​​of democracy.

More than half of the world’s population lives under authoritarian regimes, and movements that clearly question individual and public freedoms and foment xenophobia persist at the polls. There are many reasons for this, but among them is an almost universal feeling of resentment.

Many citizens around the world are suffering from economic hardship, while a section of the population – the rich and the companies they own and control – are doing just fine.

As the world faces a decade of crises, it’s time for those who benefit to pay their fair share to help alleviate these grievances. And this can be done in part through taxes.

Take, for example, the coronavirus. Three years after the emergence of Covid-19, a shocking disconnect has emerged between the human cost and the historical profits of many large companies, money that has benefited shareholders, who have profited from a dividend bonanza, share buybacks and skyrocketing share prices.

Pharmaceutical giants have made billions in profits from Covid-19 vaccines, which they would not have been able to develop without university research and government subsidies.

And Russia’s war of aggression in Ukraine has allowed energy and food companies to increase profit margins by 256% in 2022 – compared to the 2018-2021 average – even as ordinary households struggle to pay their bills.

Shareholders in these companies received $257 billion – or 84% of windfall profits – last year alone, according to an Oxfam report, “Survival of the Richest”, published this week to coincide with Davos.

These exorbitant corporate profits are not the result of hard work or sudden creativity. They are a result of the political situation. The war sent energy prices skyrocketing, especially the cost of natural gas.

And many food products produced in the region, such as wheat, became inaccessible, which caused food prices to skyrocket. With these high prices came unearned windfall profits. And they must be taxed at a higher rate than corporations generally pay.

A well-designed tax on windfall profits – which vary from country to country – can encourage investment and increase revenue. The revenue would allow countries to finance increased public services – such as health, education and access to water and sanitation – that can help all citizens, especially the most vulnerable.

The tax would also help nations build the infrastructure needed to tackle the existential challenge of climate change, such as clean energy services, green transportation and energy-efficient buildings. Several countries in Europe have already started to implement an unexpected tax.

For the same reasons, it is urgent to tax the richest, some of whom nowadays pay almost no taxes thanks to tax havens, among other strategies. Oxfam argues, correctly in my view, that there is something fundamentally wrong with a world order in which a man like Elon Musk, one of the richest people in history, is actually taxed at just 3.3%, while Aber Christine, a poor flour seller in Uganda is taxed at 40%.

It’s an even more shocking shortcoming than the one Warren Buffett denounced nearly 12 years ago, later explaining that he paid taxes at a lower rate than his secretary did. Since 2020, the richest 1% have captured nearly two-thirds of all new wealth.

Getting the richest to pay their fair share to fund the expansion of rights like universal access to health and education is actually not a radical or even an exotic idea.

In the aftermath of World War II, the United States made it one of its main tools for reconstruction, instituting one of the highest peacetime marginal tax rates in the world at 91% in 1951, which was increased to 92% the following year. .

At the same time, taxes on corporate profits were 50%. Even as recently as 1980, the top marginal income tax rate for the richest was 70%.

Since then, politicians have systematically cut virtually every tax that falls on the rich, from income taxes and high-end investments, to real estate and corporate taxes, to inheritance taxes, claiming that the entire economy would benefit.

You know the rest: inequality in the United States and other countries around the world has soared, working-class wages have stagnated, working conditions have deteriorated, and debts have soared.

As for the richest, they’ve done incredibly well, but they’re the only ones. The same pattern has been repeated around the world, with political consequences that we are seeing in action.

With the inflation crisis, it is impossible to keep running away from the debate. As the Independent Commission for the Reform of International Corporate Taxation (ICRICT) believes, progressive taxation – making those with the broadest shoulders actually pay their fair share – is one of the most powerful tools for reducing inequality and building more resilient societies. and inclusive.

To refuse this solution is to force the States to institute austerity programs, cutting public services and pensions. This is a recipe for much greater chaos than what we saw in Washington and Brasilia. And that is too high a price for the world to pay.

*Joseph E. Stiglitz, Nobel Laureate in Economics and University Professor at Columbia University, is the co-chair of the Independent Commission for International Corporate Taxation Reform (ICRICT). The opinions expressed in this commentary are his.