A Tweet from Tahrir Square - Time to Tax the Rich

by Hassan Heikal

Financial Times
November 21, 2011

http://www.ft.com/intl/cms/s/0/f39679f4-1433-11e1-b07b-00144feabdc0.html#axzz1eTg0gzXc

Silvio Berlusconi said Italy was not Greece. Hosni Mubarak
said Egypt was not Tunisia, arguing that Tunisia was a much
smaller country, on the periphery of the Arab world, and
lacked the breadth and the fundamentals of Egypt. Mr Mubarak
was wrong, so was Mr Berlusconi. The spark in Tunisia of
course fuelled a chain reaction leading to the Arab
Awakening across the Arab world.

In the case of Egypt, the outdated regime was far too
sluggish in reacting to the crisis which was challenging its
legitimacy, always managing to fall short of the necessary
response. It was as if it was relying on a typewriter as
opposed to a "social network".

The same goes for Europe. Facing a public debt crisis, it
has - as so many have observed - been slow to respond.
Pathetically short in ideas, the European Union comes across
as an old regime that cannot comprehend the markets'
"pulse".

In Tahrir Square, the pulse of the nation brought down one
of the region's older dictatorships and it is still
throbbing, as we have seen with the drama in recent days,
which reminds us that this revolution is still only in its
early stages.

In Europe, the pulse of the markets will eventually bring
down the current unsustainable euro regime. The contemplated
austerity measures will only put further strain on fragile
economic and social imbalances. Low interest rates coupled
with relatively high inflation mean that middle class people
and pensioners, with their savings, are paying the price of
salvaging Europe's economy from the crisis. This will lead
eventually to more "anti-capitalist" demonstrations in
Europe and the US.

Cuts in governments' budgets will lead to higher
unemployment which is already a staggering 22 per cent in
Spain, where one in every three young people is unemployed.
Do you think your average 25-year-old Spaniard will stay at
home watching Barcelona versus Real Madrid? Or will he
ultimately take part in social unrest or, as I call it, a
"social justice movement"?

So what could be done differently? I have a controversial
solution. We should impose a one-off global wealth tax of
ten to 20 per cent on individuals with a net worth in excess
of $10m, with tax receipts going to their country of
citizenship.

The aggregate wealth of those individuals - that is those
with net worth in excess of $10m - is approximately
$50,000bn. Paradoxically they - or I should say "we" -
represent fewer than one in 10,000 of the world's
population.

The global proceeds of what I call the "Tahrir Square tax"
would be, if levied at 10 per cent, approximately $5,000bn.
Europe should receive $1,500bn, more than enough to deal
with the European public debt crisis. It would bring down
eurozone public debt, excluding that of Germany and France,
to below 50 per cent of gross domestic product.

In most emerging markets, such as Egypt, let alone Africa,
the ramifications of receiving such a windfall would be
enormous. My aspiration would be for governments to reduce
public debt, allowing them to reinvest in infrastructure,
research and other means of energising labour markets. This
will of course seem very difficult to implement and the
disbursement of such bounty would of course be open to
corruption. But it is worth noting, as something of a
precedent, the Islamic concept of zakat. One of the five
pillars of the faith, this is a deduction of wealth at the
rate of two and a half per cent a year, generally seen as
voluntary.

In the US, it would cut the ratio of debt to gross domestic
product to 80 per cent, giving the US government room to
breathe and the opportunity to spend on new initiatives,
infrastructure and health care, fuelling global growth.

So why would the rich not lobby against it? Bear in mind
that if the uncertainty in the markets clears, equity and
asset valuations will rise significantly - in my view, by
more than the one-off cost of a global wealth tax, making
the rich even richer.

The super-rich have not paid their dues to society in recent
years, and more and more of us now know it. The average
personal income tax rate on the wealthy was far lower than
that paid by middle-income earners. In emerging markets,
capital gains and withholding tax on dividends are tax-
exempt. In other words, the new breed of super-rich paid no
personal tax.

For President Barack Obama there would be a real return. The
"Tahrir Square tax" would give America the moral high ground
and restore the derailed American dream. And to return to my
homeland, Egypt, which is once more in ferment, the windfall
tax could bring the government more than $5bn, almost double
the amount of debt relief being negotiated with the
International Monetary Fund.

If we are really serious about getting out of the current
crisis, the rich should pay their dues.

[The writer is chief executive of EFG Hermes]

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