‘Top 10% owns over half of global income; very moderate wealth tax can help bottom 50%’
The bottom 50 per cent of the global population owns just 2 per cent of wealth and 8 per cent of income, while the top 10 per cent of population owns 76 per cent of total household wealth and captured 52 per cent of total income in 2021, the findings of the latest World Inequality Report 2022 showed. The report, co-authored by economist Thomas Piketty, has suggested that a “very moderate wealth tax” ranging from 1 per cent of wealth owned over $1 million to 3 per cent for global billionaires can generate 1.6 per cent of global income.
“Wealth taxation in unequal societies helps tackle extreme inequality and generate substantial revenues to invest in the future. A very moderate wealth tax would generate 1.6 per cent of global income…the average increase in the wealth of billionaires is over 9 per cent per year. So if you tax them at 3.5 per cent, it still means their wealth is going to increase in coming years…this (wealth tax) can raise significant amount of money to invest in climate investments for bottom 50 per cent of the population, in education and also in health,” Lucas Chancel, Co-Director, World Inequality Lab, said Wednesday during a pre-briefing meeting of the report to be released in December.
On the recent proposal of a global minimum corporate tax rate of 15 per cent, the report has said that 15 per cent global minimum rate is a progress but remains 1.5-2x lower than statutory rate. “The 15 per cent minimum corporate tax deal is going in the right direction but we still feel that 15 per cent is very low as compared to the statutory tax rate paid by low-end and middle-size companies/corporations. In most countries the (tax) rates are 15 per cent to twice that value and are also carve-outs which can reduce the amount of revenues by 20 per cent…we need to be very careful about how this 15 per cent minimum corporate tax is going to develop in practice effectively. We need to look at carve outs. We also need to always remember that 15 per cent is very low and there is also discussion on who gets to gain between the north and the south,” Chancel said. As per the estimates in the report, a 15 per cent minimum corporate tax would lead to revenue gains of 83.3 billion euros in EU, 57.0 billion euros in the US, 6.1 billion euros in China and 0.5 billion euros in India (without carve-out).
The global bottom 50 per cent income share remains historically low despite growth in the emerging world in the past decades. The share of global income going to top 10 per cent highest incomes at the world level has fluctuated around 50-60 per cent between 1820 and 2020 (50 per cent in 1820, 60 per cent in 1910, 56 per cent in 1980, 61 per cent in 2000, 55 per cent in 2020), while the share going to the bottom 50 per cent lowest incomes has generally been around or below 10 per cent (14 per cent in 1820, 7 per cent in 1910, 5 per cent in 1980, 6 per cent in 2000, 7 per cent in 2020), the report said.
The top 0.1 per cent of the global population captures more income than the entire bottom 50 per cent. The average annual wealth growth rates among the poorest half of the population were between 3 per cent and 4 per cent per year between 1995 and 2021. The poorest half of the world population only captured 2.3 per cent of overall wealth growth since 1995. The top 1 per cent benefited from high growth rates (3 per cent to 9 per cent per year). This group captured 38 per cent of total wealth growth between 1995 and 2021. The share of wealth detained by the world’s billionaires rose from 1 per cent of total household wealth in 1995 to nearly 3.5 per cent today, it said.
The report has also put forward the trend of inequality before and after tax transfers. Some countries such as South Africa start with an extremely unequal income distribution before taxes are redistributed but in India it’s still a very unequal income distribution before and after distribution of taxes. “The main point is that those countries who tend to redistribute more also tend to be countries which pre-distribute more compared with countries which have an already low pre-tax inequality levels,” Chancel said.
In gender terms, the report has stated that women make just a third of global labour incomes, which has seen very limited change since 1990. The share of female incomes in global labour incomes was 31 per cent in 1990 and nears 34 per cent in 2015-2020 and males make the remaining 66 per cent. In terms of global carbon emissions, the bottom 50 per cent of population is responsible for 12 per cent of world emissions, while the 10 per cent highest emitters are responsible for close to half of world individual emissions. “…even in low income countries we see that for instance in India or China, a part of the population is well above the target and would have to reduce the emissions to meet the target even though overall emissions in a country like India are set to increase by 2030,” Chancel said.
The second edition of the World Inequality Report will be released on December 7.