The recent trend of wealthy individuals hiring private firefighters in Los Angeles is a deeply concerning sign of governments unable to fund essential services to support law and order and crisis management in times of great need. In California, the outdated water infrastructure and supply, combined with budget cut-imposed personnel shortages have meant that LA was completely ill-equipped to deal with the costliest wildfires in US history. Los Angeles should provide a cautionary tale for the rest of the world. When extreme wealth is untaxed, governments are unable to fund essential services for law and order and crisis management. The more that public funds are cut, the less likely public services will be able to cope with crises threatening entire societies, not just the poor.
Everywhere around the world, governments are struggling to provide adequate public services due to insufficient tax revenues. In the UK, most public services are at some risk of collapse. In the European Union public spending has dropped significantly in the face of growing needs. Other high income countries like Canada, are also struggling to provide adequate funding for essential services such as law and order, fire protection, and emergency preparedness. When it comes to crumbling infrastructure, it is the US who leads the pack with a staggering $1.44 trillion shortfall in infrastructure funding through 2025.
The truth is that the world is not just in the grips of a public spending crisis. It is a morality crisis because the wealthy are not paying their fair share in tax. Leaked US tax returns show that top billionaires pay little to no federal income tax, with effective rates far lower than average citizens. And this morality crisis continues to worsen as untaxed wealth increases, undermining the social contract of progressive taxation, where individuals are taxed on the basis of their ability to pay.
The consequences of untaxed wealth are widespread. Governments are losing billions in potential revenue, with projections suggesting nearly $5 trillion could be lost over the next decade due to tax evasion and avoidance. This amount equals a full year’s global spending on public health.
The concentration of wealth in private hands now outstrips many government purses, raising issues about accountability and undue political influence. With billionaires increasingly influencing politics, including the thirteen who are being considered US President-elect Trump’s cabinet (representing a combined net worth of over USD 450 billion), there is justifiable concern that extreme wealth concentration distorts democracy and undermines stability.
The good news is that public support for wealth taxes is actually very strong. Earth4All’s global survey with Ipsos revealed overwhelming support for progressive tax reforms and broader political and economic changes to reduce inequality. Additionally, Patriotic Millionaires have also surveyed opinions of ¾ of high-net worth individuals in G20 countries who regard extreme wealth as a threat to democracy.
Implementing a modest wealth tax could generate significant revenue for public services as well as the needed just energy transition. For example, a 1% tax on assets over $50 million could raise about $94 billion annually in the US. Wealth taxes offer multiple benefits beyond revenue generation. They can stimulate economic growth by redistributing resources, correct market failures, promote fairness, and create a more stable political climate by reducing inequality and social tension.
Economic models where taxation policy is strong show us that when revenue generated from wealth taxes is allocated to essential public services such as education, healthcare, and infrastructure, these investments enhance the quality of life for all citizens and create a more educated and healthy workforce. These benefits also extend to the most wealthy citizens of society who equally benefit from a well-functioning community with less crime, social tension and where their businesses can thrive due to a more stable consumer base to support economic activity.
But if the solution is as straightforward as raising top marginal rates by a small amount or introducing a wealth tax, why is there such resistance to bearing a responsibility that appears critical and ostensibly beneficial? The answer lies in a growing pervasive culture of greed among the world’s wealthiest. In recent years, the wealthiest 25 Americans saw their worth increase by USD 400 billion (from 2014 to 2018). But on average, they pay a disproportionately small tax rate of just 3.4%, well below the 15% tax rate that most middle-class Americans pay, reflecting the failure of tax laws to levy increases in wealth in the way that wages are taxed.
As world leaders gather in Davos, it is time to prioritize wealth taxation as an important fiscal tool that can equip governments with the revenue needed to make societies more equal, stable, and resilient against social unrest and extreme events. Earth4All has applied its system dynamics modelling to explore the contribution of wealth taxation to addressing poverty and inequality. And organisations like Patriotic Millionaires and the New Economics Foundation are doing important work in developing new metrics to measure extreme wealth levels and its impact on wellbeing.
But at the end of the day, in order to achieve wealth taxation, we need a new social contract that addresses unfettered growth and the widening wealth gap. We know that fairer wealth distribution will improve wellbeing for all and strengthen democracies. But we need enlightened leadership focused on long-term solutions and a recognition that the wealthy must pay their fair share to help create safer, healthier, and more stable societies in an increasingly fire-prone world.
Sandrine Dixson-Declève, Executive Chair of Earth4All and Global Ambassador for The Club of Rome
Johannah Bernstein, Senior Policy Lead, Earth4All
