The rich and their tax havens: what would Marx and Piketty say?

Half of the 16 million people in Malawi, Africa, are living in poverty. They earn less than $1 per day, and they cannot access good medical attention. Yet Africa loses an estimated $14 billion in annual tax revenues—enough to save four million children’s lives a year and put every African child into school—because the rich put their wealth in tax havens like Panama.

This is just one example of how tax avoidance and tax evasion impact the poorest people in the world—to enable the richest to dodge paying tax on their wealth.

The fallout from the release of the Panama Papers on the world’s rich is just beginning, but for the developing world, the damage caused by tax avoidance and tax evasion is already done; Oxfam says tax avoidance costs developing countries an estimated $160 billion every year—a sum greater than all overseas aid donated by all governments around the world.

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And Raymond Baker, the Director of non-profit organization Global Financial Integrity, has called the flow of illicit money (wealth that has been illegally earned, transferred, or used) across borders the “ugliest chapter in global economic affairs since slavery.”

But what would two of the world’s greatest thinkers on financial equality—Karl Marx and Thomas Piketty—make of the revelations, and could they offer any suggestions for fixing the problem?

 

Will the rich always have their way? Karl Marx on morality

What would Karl Marx say if he was alive to witness the Panama revelations? We don’t have to look very far for the answer: there are insightful ideas in Marx’s seminal work Capital that still have much to offer in this context, particularly concerning the relationship between the individual and society, and the nature of human morality.

In Capital, Marx argues that capitalism works by exploiting the working class, because the value that comes from labour outweighs the wages that are paid to the people who are doing the work; Marx called this extra value “surplus value,” which capitalists take for themselves rather than sharing with society.

As a result, in a capitalist system money is diverted to the few, rather than being shared equally throughout society by the many.

What Karl Marx can teach us about the rich and their tax:

Capitalists exploit the working class, Marx argues, but are also wholly reliant on them; in the past this imbalance has led, periodically, to crises of social upheaval and unrest. He argued that when the working class fully realizes that they are giving more than they are receiving, they will revolt—and the system will be destroyed.

Was Marx right? Could insights like those revealed in the Panama papers push us further toward revolution, or even change?

 

The rich get richer, and the poor get poorer: Piketty’s solution

For his 2013 bestseller, Capital in the Twenty-First Century, Piketty spent 15 years analyzing two centuries’ worth of data covering wealth and inequality around the world. He used this data to argue that—contrary to mainstream economic theory—capitalism actually increases financial inequality between the rich and the poor, rather than reducing the wealth gap.

This argument is neatly summarized by John Christensen, director and co-founder of the Tax Justice Network, who told Newsweek after the Panama Papers revelations, “It goes back to the simple rule of law—if the rich and powerful pay less tax, then the rest of us end up paying more… The rich get richer and the poor get poorer.”

Piketty’s solution was for governments to cooperate to implement a global wealth tax—even if he admits this “utopian” idea has little chance of becoming a reality.

What Thomas Piketty can teach us about the rich and their tax:

Thomas Piketty’s stance on wealth and tax is clear: the rich should pay more tax, not less. Based on the unparalleled database he used in his research, he argued that only when major shocks destroyed a sizeable amount of the wealth of the rich did inequality fall to a low level and remain there for some time.

These shocks were primarily caused by two World Wars, a global depression, and progressive taxation—by the late 1950s, during the conservative presidency of Dwight Eisenhower, the top rate of tax in the United States stood at 91%. And radical revisions to the tax structure are also Piketty’s solution: a global tax on wealth that would reduce the gap between the rich and the poor.

 

The future of global tax: how two great thinkers are impacting the debate

Incidents such as the release of the Panama Papers give us an insight into the world of inequality—and seem to prove that the capitalist class will always find ways to increase their wealth while oppressing the working classes financially. But, with the help of Karl Marx, Thomas Piketty, and their supporters, the “revolution” that Marx predicted is making dents in the consciousness of the world’s working class.

“Rock-star economist” Piketty’s accessible book has been translated into over 50 languages and has single-handedly shifted the focus of economists towards income equality. It inspires the Occupy movement, new generations of popular left-wing politicians in Spain, Italy and Greece, and prompted the author’s recruitment to UK Labour leader Jeremy Corbyn’s team of economic advisors.

The issue of inequality is now so critical to the world’s political and economic future that in 2015 the London School of Economics (LSE) launched a new institute devoted to the investigation of rising inequality. And who did they choose to lead it? None other than Thomas Piketty, who was appointed a centennial professor at LSE.

Piketty is getting closer to achieving real change: in early 2016, he wrote of the socialist Bernie Sanders’ progress in the US Presidential elections: “It has now been demonstrated that another Sanders… could one day soon win the US presidential elections and change the face of the country.”

While Piketty does not call himself a revolutionary, the radical shift that both he and Marx suggest might, little by little, become a reality.

 

Get a deeper understanding of Marx and Piketty’s ideas

 

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