The world will plunge into chaos if we don’t tax windfall profits
Opinion by Joseph E. Stiglitz
Updated 3:14 PM EST, Thu January 19, 2023
The New York Stock Exchange is seen in New York on February 16, 2017.
Bryan R. Smith/AFP/Getty Images
Editor’s Note: Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is the co-chair of the Independent Commission for the Reform of International Corporate Taxation (ICRICT). The opinions expressed in this commentary are his own. View more opinion on CNN.
CNN —
It happened again. Thousands of supporters of Brazil’s former president Jair Bolsonaro stormed the country’s government buildings on January 8 in protest of their newly sworn-in president. The riots occurred almost two years to the day after the assault on the US Capitol by supporters of outgoing President Donald Trump.
Joseph E. Stiglitz
The similarities are striking: the violence and vulgarity of the attacks against democratic institutions and the aim to sow chaos while claiming to be law and order. In both cases, political leaders questioned the results of elections, and, in general, the values of democracy.
Over half the world’s population lives under authoritarian regimes, and movements that clearly call individual and public freedoms into question and foster xenophobia persist at the ballot box. There are many reasons for this, but among them is a near-universal sense of grievance. So many citizens around the world suffer from economic hardship while a sliver of the population — the wealthy and the corporations they own and control — is doing extremely well.
As the world faces a decade of crises, it’s time for those who benefit to pay their fair share to help alleviate these grievances. And that can partly be done through taxes.
Take, for example, the coronavirus. Three years after the emergence of Covid-19, a jarring disconnect has emerged between the human toll and the historic profits of many large companies, money which benefitted shareholders, who cashed in on a bonanza of dividends, stock buybacks and sky-high share prices. The pharmaceutical giants have made billions in profits from Covid-19 vaccines, which they wouldn’t have been able to develop without university research and government subsidies. And Russia’s war of aggression in Ukraine has allowed energy and food corporations to increase profit margins by 256% in 2022 — compared with the 2018 to 2021 average — even as ordinary families struggle to pay their bills. The shareholders of these companies received $257 billion — or 84% of windfall profits — last year alone, according to an Oxfam report, “Survival of the Richest,” published this week to coincide with Davos.
These exorbitant corporate profits are not a result of hard work or sudden creativity. They’re a result of the political situation. The war caused energy prices to soar, especially the cost of natural gas. And many food products produced in the region, such as wheat, became inaccessible, which prompted food prices to skyrocket. With these high prices came undeserved windfall profits. And they should be taxed at a higher rate than corporations usually pay.
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A well-designed tax on windfall profits — which would vary country to country — can both spur investment and raise revenue. The revenue would enable countries to fund increased public services — like health care, education and access to water and sanitation — that can help all citizens, especially the most vulnerable. The tax would also help nations build the infrastructure needed to face the existential challenge of climate change, such as clean energy services, green transportation and energy-efficient buildings. Several countries in Europe have already begun to implement a windfall tax.
For the same reasons, it is urgent to tax the richest, some of whom get away with paying hardly any tax these days thanks to tax havens, among other strategies. Oxfam argues, correctly in my view, that there is something fundamentally wrong with a world-order in which a man like Elon Musk, one of the richest in history, is actually taxed at just 3.3%, while Aber Christine, a poor flour vendor in Uganda, is taxed at 40%. It is a gap even more shocking than the one Warren Buffett denounced almost 12 years ago, later explaining that he paid taxes at a lower rate than his secretary. Since 2020, the richest 1% have captured almost two-thirds of all new wealth.
Making the wealthiest pay their fair share to finance the expansion of rights such as universal access to health care and education is not actually a radical or even exotic idea. In the aftermath of World War II, the United States made it one of its main tools for reconstruction, instituting one of the highest marginal peacetime tax rates in the world of 91% in 1951, which was then increased to 92% the following year. At the same time, taxes on corporate profits were 50%. Even as recently as 1980, the top marginal income tax rate on the richest was 70%.
Since then, politicians have systematically cut virtually every tax that fell on the wealthy, from high-end income taxes and investment taxes, to estate and corporate taxes, to inheritance taxes, claiming the whole economy would benefit. You know the rest: Inequality in the US and countries around the world soared, working-class wages stagnated, working conditions deteriorated, and debts ballooned. As for the richest, they have done amazingly well, but they are the only ones. The same pattern has been repeated all over the world, with political consequences we are seeing in action.
With the inflation crisis, it is impossible to continue avoiding the debate. As we at the Independent Commission for the Reform of International Corporate Taxation (ICRICT) believe, progressive taxation — making those with the broadest shoulders actually pay their fair share — is one of the most powerful tools to reduce inequality and build more resilient and inclusive societies. To refuse this solution is to force states to institute austerity programs, cutting public services and retirement benefits. This is a recipe for a chaos far greater than what we saw in Washington, D.C. and Brasilia. And that is a price too steep for the world to pay.
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