Amid fiscal woes, governments take aim at rich
Anthony Faiola, Washington Post
(09-27) 04:00 PDT London --
In this land of inherited privilege and celebrity billionaires, it no longer pays as much to be rich.
Hobbled by soaring debt and ballooning public spending amid the global financial crisis, the British government is joining others around the globe in tapping the wealthy to cover huge shortfalls. As a result, the tax rate here for those making more than $250,000 a year is set to jump from 40 to 50 percent, leaving the likes of Charlie Mullins - the self-made king of London plumbing - fuming. He estimates that the new bill on his $2.5 million annual income, with exemptions, will jump by no less than $236,000.
Observers say it is part of a far broader campaign in the wake of the Great Recession - including curbs on bankers' pay and a rigorous global hunt for tax cheats from Switzerland to Singapore - that is suddenly putting the world's wealthy on notice.
In the United States, taxes on the richest Americans are one option for covering the cost of offering health care to the 46 million who are uninsured. The Obama administration has pledged to press forward with its ambitious agenda without raising income taxes on families earning less than $250,000. But the president's current budget calls for a rollback of the Bush tax cuts for the richest Americans that would increase their top marginal tax rate in 2011 from 35 percent to 39.6 percent, or the same as in the Clinton era.
In India, the government has launched an effort to track down billions of dollars in "black money" - or hidden profits of the rich. In Germany, Parliament in July passed a law requiring the affluent to provide more information on the locations of their assets. Since the economic crisis began, there have been fresh tax increases for high-earners in the Netherlands, France, Ireland, Italy, Belgium and several other countries.
Analysts say the action marks the first time since before the Reagan-Thatcher era of the 1980s - when trickle-down economics led to decades of lower tax rates on the wealthy - that the world's moneyed have faced this level of pressure from such a wide array of governments. It happens as cash-strapped governments - even as the global economy begins to recover - are scrambling for scarce sources of revenue to fund expensive stimulus packages, combat the recession and expand services to the less fortunate.
There has been "an absolutely direct correlation between taxes and the financial crisis," said Jon Terry, head of reward practices at Pricewaterhouse Coopers in London. "If there was no financial crisis, I would have been surprised if taxes would have increased at all for high-earners."
Given the gap between the rich and poor that widened globally during the excess of recent years, many see the wealthy as the fairest, most likely source for funds in hard times. In the case of tax cheats, the campaign to root them out, many argue, is long overdue.
But for some, it is beginning to feel like governments are piling on when it comes to the rich - who, through lost real estate and stock values, have already shed untold billions.
"I know the public is angry and looking for someone to blame, but this (crisis) was not the doing of people like me," said Mullins, a mop-topped 56 year old who left school at age 15 to form Pimlico Plumbers, now one of Britain's largest plumbing companies with 162 employees. "I've worked hard for what I have, and the government is taking it away because they've dug themselves into a fine mess. I know the rich have certain responsibilities, but this just isn't right."
A special hot seat has been reserved, however, for those seen as directly responsible for causing the economic crisis - namely, bankers.
At a summit of the Group of 20 industrialized nations in Pittsburgh this month, the French and Germans will press for strict caps on extravagant bonuses at financial firms. Though such a measure has met resistance from the United States and Britain - home to the world's two great financial centers, New York and London - President Obama and other leaders are nevertheless expected to embrace guidelines for a level of transparency and government scrutiny of bankers' pay considered unthinkable before the crisis.
On a national level, the Obama administration's plan to curb financial bonuses is still pending before Congress. Yet other countries have already acted.
The Dutch, whose taxpayers also are footing the bill for massive bailouts, have gone as far as capping bonuses at 100 percent of base salary while limiting severance packages to one-year's pay. The French have moved to defer existing bonuses and forbid multiyear bonus guarantees, making it no longer quite as rewarding to be a financial executive in Paris.
French bankers are reacting with a mix of anger and acceptance. "I would think that among the various causes you may give for the crisis, traders' pay is not a significant cause," said Pierre de Lauzun, director general of the French Banking Federation. "Of course, after a crisis, it is not bad that people reflect on how to make the market healthier. But (the bonus issue) is not the main cause, not the dominant problem. It is one dimension among others."
The push for more government revenue during the crisis has fueled what experts describe as the most serious global effort to root out wealthy tax evaders in recent history. The campaign began in earnest in April with threats to "name and shame" governments that act as tax havens. But it is now poised to markedly escalate, with G-20 leaders in Pittsburgh, according to sources close to the talks, set to take the further step of imposing sanctions on tax havens such as Uruguay and Panama if they do not move to cease shielding tax dodgers by March.
Already, the campaign has cracked open the famous secrecy of Swiss banks, which, under extreme pressure, have shared thousands of names of tax cheats with the Americans and the French. Last month, Indian officials said they would begin talks with Switzerland to track down an estimated $27 billion annually in "black money" hidden by wealthy Indians overseas, which they consider vital cash that could go toward economic development and programs for the poor.
Yet some experts caution that such efforts only scratch the surface. In India's case, for example, critics argue that the government is moving too slowly to follow up on promises to bring wealthy cheats to justice, in part because many tax offenders are believed to be government officials.
Underscoring mounting public rage, on Sunday in New Delhi dozens of residents marched at the historic downtown India Gate against the "laziness" of the government in tracking down black money deposited in Swiss bank accounts.
Cheats or not, the rich are seeing governments helping themselves to their wallets in a manner not seen in years - particularly in Britain.
Spurred by Thatcher, who came to power in 1979, Britain became a relative paradise for the wealthy, with maximum tax rates coming down from 83 percent
to 40 percent in recent years. But with Britain facing one of the world's sharpest downturns and lagging behind much of the rest of Europe in recovery, Prime Minister Gordon Brown has called the wealthy the fairest targets for the heavily indebted government.
Not only is the general income-tax rate for wealthy Britons scheduled to leap from 40 to 50 percent for 2010 but they will see major rollbacks on the types and sizes of permitted tax deductions. A separate tax on wealthy foreigners who live in Britain but do not pay income taxes here - a measure partly aimed at the Arab sheikhs of elegant Mayfair - will now force them to cough up about $51,000 a year.
Some, like the Swiss, whose domestic tax loopholes can still dramatically benefit foreign high-earners, see an opportunity to lure the jilted rich of Britain. Swiss officials have begun hosting seminars in London, seeking to persuade wealthy executives to move to the friendlier environment in the shadow of the Alps.
Some appear to be taking them up on their offers. Others, like Irish packaging tycoon Dermot F. Smurfit, thought about it but ultimately decided to stay in Britain.
"It bothers everybody paying taxes, and the rich have already been hit harder than the average person in this crisis since they have more stocks or property that have lost value," Smurfit said. "But I guess you can say that it is fair that the wealthy should pay more. That doesn't mean you have to like it."