NEW YORK – Amazon.com founder Jeff Bezos has the resources to get started in space. Elon Musk too.
In many ways, however, the richest people in the world left the rest of us behind a long time ago.
The richest 500 people in the world are now worth $ 8.4 trillion, up more than 40% in a year and a half since the global pandemic began to devastate. Meanwhile, the biggest winners in the economy, the tech companies that created many of these vast fortunes, pay lower tax rates than grocery clerks, and their mega-rich founders can exploit the legal loopholes to pass huge profits on to heirs largely tax-free.
Now, a group powerful enough to challenge the supremacy of the tech titans is about to take action. Group of Seven leaders, including President Joe Biden and British Prime Minister Boris Johnson, meet in South West England this weekend, where they are expected to approve a plan to close loopholes in the tax system global.
While the changes have yet to be approved by a larger group of nations, including China, before becoming a reality, the G-7 deal marks a historic turning point after decades of lower taxes on multinational corporations.
“It is very easy for multinationals and the richest to evade taxes. What we are seeing with the G-7 is that the time has come for politicians to take back power, ”said Philippe Martin, former adviser to French President Emmanuel Macron who now heads the Economic Analysis Council. “There is a window of opportunity, a turning point where they realize they need fiscal power and they need to spend more.”
The deal would bolster Biden’s own plans to raise taxes on corporations and the wealthy by raising rates, making heirs pay more, and equalizing rates between investors and workers.
The proposals are part of a global revival of initiatives to target the wealthy, from Buenos Aires to Stockholm to Washington, including new taxes on capital gains, inheritance and wealth that have gained momentum. ever since Covid-19 blew massive tax holes in government budgets around the world.
US Treasury Secretary Janet Yellen has presented the G-7 agreement as a way for governments to protect their national sovereignty and set their tax policy.
“For too long there has been a race to the bottom in corporate tax rates,” Yellen said following the G-7 finance ministers meeting in London last week, ahead of the meeting. this week-end.
Amazon and other tech companies, meanwhile, have endorsed the deal, believing the global regime will be more manageable than the expensive alternatives sought by individual countries. Bezos also expressed support for an increase in corporate taxes in the United States to pay for infrastructure.
Supporters of a tax increase say measures are needed to prevent a rise in populism and even for the sustainability of capitalism.
“The most visible and prominent winners of globalization are these large multinationals whose effective tax rates have collapsed,” said Gabriel Zucman, professor of economics at the University of California at Berkeley, who follows the wealth and inequality. “This can only lead to a growing rejection of this form of globalization by the people. “
The World Economic Forum, the organizer of the annual conference of the rich and powerful in Davos, Switzerland, released a white paper this month arguing that “tax systems must be redesigned effectively to tax capital and multinationals.” .
Governments need revenue and “progressive taxation will be a key mechanism to compensate for the uneven recovery already underway,” according to the report.
There are still many supporters of low taxes.
Conservative economists such as Douglas Holtz-Eakin, chairman of the American Action Forum, argue that taxing the wealthy and corporations more heavily will hurt the economy.
“Higher taxes on capital generally raise the possibility of slower productivity growth,” said Holtz-Eakin, who was an adviser to President George W. Bush.
This view is losing ground, however, as resentment grows over the ways in which highly profitable companies reduce their taxes.
Facebook, Apple, Amazon, Netflix, Google and Microsoft collectively bypassed around $ 100 billion in U.S. taxes from 2010 to 2019, according to an analysis of regulatory returns from Fair Tax Mark, a progressive think tank. Many of these untaxed profits have been transferred to tax havens like Bermuda, Ireland, Luxembourg and the Netherlands.
Amazon paid an effective corporate tax rate of 11.8% in 2020, according to an analysis by Bloomberg Economics, and that’s hardly an outlier among very successful tech companies. Facebook, founded by the fifth richest person in the world, Mark Zuckerberg, paid 12.2% last year.
Asked to comment on this article, an Amazon spokesperson highlighted some of the company’s previous statements regarding its tax bill, including, in part: “Amazon’s taxes, which are published, reflect our investments. ongoing, employee compensation and current US tax. laws. “
As a mix of a tech company and a retailer with massive physical infrastructure, Amazon is able to use a host of long-standing and discreet tax preferences for equity compensation, buildings, research and development. . Bezos pushed to reinvest profits in the business, a strategy that keeps taxable income low and tax breaks high.
Amazon completely avoided federal income taxes in 2017 and 2018 through its judicious use of the tax code. Since then, the company has had to pay income tax to the Internal Revenue Service, but it is well below the overall rate of 21% installed under President Donald Trump.
The founders of billionaire technologies often pay even less personally than their companies.
Bezos, for example, got $ 77 billion richer in 2020, according to the Bloomberg Billionaires Index. But in the United States, gains on stocks are only taxed when they are sold, at a rate much lower than what affluent workers pay, meaning Bezos owed the Treasury a few billion dollars in taxes at most. American last year.
“The wealthiest in this country, who profited immensely during the pandemic, have not paid their fair share,” Senate Finance Committee Chairman Ron Wyden said after ProPublica reported on Tuesday that several of the billionaires around the world, including Bezos, have paid no federal income. taxes certain years.
The media organization said it obtained confidential tax documents on thousands of the richest Americans, including Warren Buffett and Michael Bloomberg, owner of Bloomberg LP, the parent company of Bloomberg News. Bloomberg and others told ProPublica they paid the taxes they owed.
To remove the benefits of the U.S. tax code that benefit the ultra-rich, Biden proposed taxing legacy assets that currently escape levies and raising the maximum rate on investment income so well-paid workers and investors pay. the same thing.
Internationally, the administration is seeking a global minimum tax of at least 15% for the world’s most profitable companies – the deal is expected to be brought forward at the G-7 meeting this weekend.
The G-7 deal would change other corporate tax rules to undermine efforts to shift profits to low-tax countries. Biden also advocates raising the rate on U.S. corporations to 28%, partially reversing Trump’s tax overhaul.
Tech companies could see their effective tax rates rise if a global tax deal is struck, according to a Morgan Stanley study. Alphabet’s Facebook and Google could both pay 28% of their profits globally, up from 18% and 17% respectively under current rules, according to the report.
Despite all the talk about taxing the rich, Biden’s proposals and the international tax deal face serious hurdles before being passed.
While some of his fellow Democrats, who tightly control Congress, push for more sweeping estate and wealth tax changes, others are hesitant.
The next step in the global tax negotiations, which were launched years ago by the Organization for Economic Co-operation and Development and have involved around 140 countries, is to secure the agreement of the Group of 20 countries. G-20 finance ministers, who collectively oversee around 90% of the global economy, will meet in July in Venice.
Obstacles to reaching a deal by the end of the year are China, which could seek minimum tax exemptions.
Still, there is hope that the global effort will “put an end to the madness,” said Pascal Saint-Amans, director of the center for fiscal policy at the OECD. “You had loopholes everywhere and no one was dealing with them. It undermines the very purpose of capitalism and a market economy.