Closing global wealth gaps requires cooperation

By Cui Zhiyuan Source:Global Times Published: 2018/1/29 21:53:39

Illustration: Luo Xuan/GT



 

In recent years, the widening wealth gap in China has become a hot topic in the international media. However, virtually every country faces this problem. The latest report by Oxfam UK shows that 82 percent of the global wealth created in 2017 flowed to the richest 1 percent of the global population, while the world's poorest got nothing.

India is considered the country with the world's most unbalanced economic development, and the sudden announcement of a cash ban in November 2016 severely aggravated the gap between the rich and the poor. Another study released by Oxfam in January 2017 showed that 57 billionaires in India had attained wealth equal to the bottom 70 percent of the country's population.

The Bloomberg Billionaire Index, a daily ranking of the world's wealthiest, showed that as of Sunday, among the 500 richest men in the world, 24 were from India.

The latest Oxfam report also said that although the US is the richest country in the world, its spending on social programs, labor policies and tax reform lagged far behind that of many other countries, especially other members of the OECD.

What's more, the recent US tax reform will disproportionately benefit the rich, while the welfare of the poor could soon be drastically reduced and inequality would be further aggravated. As a result, the US will fall to the same level as a number of Third World countries in this regard.

Global polarization between the rich and the poor is set to intensify. In 2017, the world's billionaires increased their wealth by $762 billion and the number of people with more than $1 billion in assets rose to 2,043, the largest increase in history. According to the Oxfam estimate released last year, "tax havens" have hidden $7.6 trillion in wealth for the richest, more than the combined economies of German and Britain.

To change this situation, governments should make concerted efforts to develop countermeasures, raise taxes on the rich and combat "tax havens" to promote equality of wealth.

Publication of the English version of Capital in the 21st Century by Thomas Piketty, the French economist, caused a global ideological sensation.

Data analysis by Piketty and French economist Gabriel Zucman found that the unregistered assets of developed countries in tax havens such as Switzerland and some islands exceeded the official net debt of these countries. This indicates that the developed countries are still creditors. This finding is of great significance to the discussion of global economic imbalances.

Zucman also found that in terms of the problem of tax havens, US-based companies were bigger offenders than individuals, whereas the personal tax haven problem in Europe, Russia and Africa was greater than the company tax haven issue.

The federal income tax rate in the US was 35 percent before the tax overhaul, so US multinational corporations kept their profits abroad, especially in tax havens. In 2004, the US Congress gave domestic multinational corporations "tax holidays" so that they only needed to pay a 5.25 percent income tax if they repatriated such profits, but this move did not have much effect.

Zucman offered a solution: through international cooperation, the tax base should be calculated on a sales-based formula that apportioned global consolidated profits to the countries where sales were made.

The reason Piketty studied the balance of payments statistics was to counter the recent popular belief in the West that China will "buy the world." He tried to prove that the gap between the rich and the poor in Western countries was the main reason for the 2008-09 financial crisis, but not because of the flowing back of developing countries' trade surpluses such as that of China to the West.

There was a shocking prophecy in Piketty's book: in the absence of radical reform, then by the end of the 21st century, the inequalities in income and wealth distribution that prevailed during the 19th century would re-emerge.

Piketty recommended using a global system of capital taxes to correct this trend. He admitted that this policy could not be realized in the short term, but he still said that a global capital tax would be a "useful utopia."

Although some of Piketty's theories are imperfect, his suggestion greatly inspired the study of economics internationally. It is of great significance to countries in formulating specific policies to alleviate the polarization of wealth.

Faced with the grim global polarization between the rich and the poor, governments should jointly crack down on corporate tax avoidance and ease excessive income imbalances through effective cooperation.

The author is a professor at the School of Public Policy and Management at Tsinghua University. bizopinion@globaltimes.com.cn



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