Issue 27 Editor's Note: Harnessing Untaxed Wealth
June 7, 2022
Charles Forerunner on Unsplash

In this issue, we examine the connections between growing social inequality, the hoarding of wealth and power by a new global “superclass” of political and economic elites, and the existential crisis of climate change. As Fergus Green and Center Fellow Noel Healy demonstrate in their groundbreaking new report, “How Inequality Fuels Climate Change: The Climate Case for a Green New Deal,” growing socioeconomic inequalities are serving to escalate emissions-intensive consumption and production, facilitate the obstruction of climate policies by wealthy elites, undermine public support for climate policy, and weaken the social foundations of collective action and solutions to the climate crisis. As suggested by the authors, integrated solutions to inequality and assaults on democracy are fundamental prerequisites to solving the climate crisis. We will more thoroughly discuss the compelling research by Green and Healy later in this newsletter. In the meantime, it is important to shed light on how inequality is exploding in this new era of corporate-led globalization and the neoliberal assault on democratic institutions across the world.

Why should we care about the unequal distribution of income and wealth? Simply put, extreme income and wealth inequality directly undermine the capacity of governments worldwide to address social injustice, systemic racism, poverty, and climate change. By using loopholes in a broken tax system, for instance, the world’s billionaires are dodging the payment of taxes that could be used to address social problems and the climate crisis. As demonstrated by Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies, the global one percent has become even more expert during the pandemic at hiding their wealth. In the first 21 months of the pandemic, roughly 700 U.S. billionaires saw their combined wealth increase by $2.2 trillion, even as millions lost their loved ones and livelihoods. A few hundred U.S. billionaires now have a combined wealth of $5.2 trillion, while the bottom half of all U.S. households—165 million people—have a combined $3.4 trillion. The new global pandemic economy is supercharging existing inequalities, worsening the economic circumstances of the already precarious, and further concentrating wealth and power in the hands of the top one percent.

As this growing superclass of wealthy elites increasingly insulates their wealth in tax havens all over the world, the debt burdens of governments increase. As detailed by Collins, some private actors function as “agents of inequality” whose daily work inflames these existing divisions. These include what social scientists call the “wealth defense industry”—the veritable professional army of accountants, tax lawyers, wealth managers, and family office staffers that facilitates the hiding and sequestering of this enormous wealth. As a result, these tax revenues are lost. In turn, government programs that could address the climate crisis and social dislocation are drastically cut or prevented from being adopted in the first place. Business-friendly politicians, often bankrolled by these same elites, argue that state spending on infrastructure, social services, and climate action is unaffordable. In reality, this scarcity mindset proves unfounded: a fair tax bracket could extract hidden wealth that could be used to save the planet and serve humanity. 

It is now increasingly clear that billionaires dominate the global economy. According to Collins, billionaires invest their fortunes in ways that serve to further expand their own wealth and power. We have watched billionaires deploy their own wealth to win elections, even buying their way onto the U.S. presidential debate stage. Moreover, members of America’s top 0.1 percent wield enormous influence in U.S. congressional, state, and local races. Billionaires “buy” politicians through direct and indirect campaign contributions and then “employ” those same politicians to pass massive tax cuts for the wealthy while blocking public investment in early education, low-cost college, and other opportunities for social mobility. In their 2018 study Billionaires and Stealth Politics, political scientists Benjamin Page, Jason Seawright, and Matthew Lacombe find that billionaires overwhelmingly favor cutting their own taxes and shrinking the social safety net.

Forbes Global Billionaires List and Consumer Price Index

As income inequality reaches unprecedented levels, billionaires are playing an ever more active role in undermining American democracy. Between 1990 and 2020, the U.S. billionaire class has seen its net worth increase by over 1,130 percent. Meanwhile, between 1989 and 2016, U.S. median household net worth grew by a mere 5.4 percent. Wealth inequality proves even more stark along racial lines: in the United States, billionaires own a combined $3.6 trillion, equivalent to 76 percent of all Black wealth and greater than all Latino/a wealth. Over 32 percent of Latino/a families and 37 percent of Black families have zero or negative wealth, compared to 21.2 percent of American families nationally.

Institute for Policy Studies
Forbes and Survey of Consumer Finance

Despite tremendous increases in the wealth of top earners, the taxes paid by America's billionaires (measured as a percentage of their wealth) decreased 79 percent between 1980 and 2018. As detailed by Chuck Collins, these multi-millionaires and billionaires are hiding their mega fortunes in offshore tax havens and dynasty trusts. With an estimated $21 trillion in otherwise taxable income stashed overseas, middle- and working-class taxpayers are left to cover an increasing share of the U.S. tax burden. In fact, in 2021, the White House released an analysis suggesting that the wealthiest 400 families paid an average effective tax rate of 8.2 percent on a combined $1.8 trillion in income between 2010 and 2018. Polls show broad support for taxes on the ultra-wealthy, likely influenced by the unequal wealth gains of the last decade, especially during the pandemic. Moreover, recent exposés into billionaire tax avoidance, including the Pandora and Paradise papers, continue to shape public opinion.

Wealth inequality experts, such as Chuck Collins, have proposed numerous solutions to address extreme wealth inequality. Passing proposals such as the Corporate Transparency Act would eliminate key enablers of wealth hiding. The U.S. can also compel its wealthiest citizens to fairly contribute to the tax burden by enacting Senator Bernie Sanders’s progressive estate tax, named “For the 99.8% Act,” and Senator Elizabeth Warren’s annual tax on those with a household wealth of over $50 million. In conjunction with these new proposals, fully funding the IRS and international investigative entities would clamp down on offshore hoarding. Especially during times of war and pandemic, an excess profits tax would discourage making excessive, unfair profits from necessities. Moreover, an emergency millionaire ten percent income surtax would compel the richest 0.2 percent to pay their fair share in financing the nation’s bailout policies. Lastly, to address the drastic wealth inequalities along racial lines, Congress should conduct racial wealth audits to determine whether each economic proposal expands or contracts the racial wealth divide.

Tax-exempt donations can never adequately substitute for a tax system in which the super-rich pay their fair tax share and contribute to the full funding of public institutions and infrastructure. According to a report published by Fight Inequality Alliance, the Institute for Policy Studies, Oxfam, and Patriotic Millionaires, a small annual wealth tax on the world's wealthiest could raise over $2.5 trillion each year. Such estimates could bring us closer to a global Green New Deal, universal health care, a decarbonized economy, and social protection for all citizens of low and lower-middle-income countries—an estimated 3.6 billion people. In short, a more progressive and accountable tax system is a key component of the struggle to build a more just and sustainable future for all of us.

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