THE REBIRTH OF THE ONE-THOUSANDTH SOCIETY
By Matthias Schnetzer
[This article published on January 14, 2015 is translated from the German on the Internet, http://blog.arbeit-wirtschaft.at
“Forget the 1%,” a recent front cover of the Economist exclaimed. The richest thousandth of the population – the top 0.1% actually depend on the rest of society. A glance at the Austrian wealth data confirms the great gap between the few rich and the great multitude. The inequality calls to mind the one thousandth society at the beginning of the 20th century. In the meantime, the discussion about a recovery of taxes on the wealthy suffers in the illusion of shock and fears of impoverishment.
In 1910 Vienna was the seventh largest city of the world and a melting pot with more than two million inhabitants. Vienna was a stronghold of millionaires as the historian Roman Sandgruber wrote in his book “Dream Time for Millionaires” and not only a bastion of the arts and sciences. The richest thousandth of Vienna’s population represented the top of society and had nearly 12 percent of the income.
Large estates and holdings in industry, banks and commercial enterprises were guarantees for great capital incomes. As the undisputed top earner, Baron Albert Salomon Rothschild paid tax on an annual income of 25.7 million crones in 1910 and as a single person earned one percent of all income in Vienna.
SOCIAL TENSIONS THROUGH WEALTH CONCENTRATION
The early 20th century was only a dream time for millionaires. The great multitude had average weekly working hours of 60 hours; social security was inadequate. The housing shortage was unrelenting; vacations were hardly possible. Only a few branches had health- and old age insurance and an insurance against unemployment did not exist. The “golden age of security” described by Stefan Zweig (who came from a well-to-do family) was marked by social tensions that put the monarchy to the test.
Around 100 years later, society seems to face a similar spread of wealth- and income distribution. The Austrian National Bank confirms a dramatic wealth concentration. The richest percent had 37% of all private wealth. The concentration was even stronger with capital incomes: the top one percent pocketed 52% of all assets.
The super-rich depend on the rest of society. The 33 Austrian millionaires – a hundred-thousandth of all Austrian households – have a wealth of 119 billion Euros. According to Trend-Estimates, their wealth increased almost 9 percent between 2013 and 2014. Even if a large part of the growth can refer back to changes in measurement, this is an indication that incomes of the super-rich developed better than households altogether that shriveled 2.2 percent in 2013 according to Statistics Austria.
While the millionaires increased their wealth enormously, the mass of the population is exposed to the continuing economic crisis. In 2014, the number of unemployed climbed another 30,000 to 330,000. Median income fell in the long-term while the rents rose tremendously.
WEALTH INEQUALITY IN THE US: THE RICHEST THOUSANDTH
With detailed data, the two economists Thomas Piketty and Emanuel Saez drew the well-known U-curve for the development of inequality in the last century. A new study by Saez together with Gabriel Zucman who recently became widely known with his book on tax havens explains that this curve highlights the top thousandth. The graph shows the development within the richest 10 percent where the greatest wealth developed very differently. The richest thousandth (0.1%) could increase their share in the total wealth very intensely since the 1980s. Meanwhile their share is 22 percent, as much as the bottom 90 percent. The US has not seen this magnitude of wealth inequality since the 1930s.
ILLUSION OF SHOCK AND FEARS OF IMPOVERISHMENT
Unfortunately there is no comparable information on the long-term development of wealth inequality. Still the available data shows the dream time for millionaires experienced a Renaissance at the beginning of the 21st century and was not limited to the year 1910. It is all the more alarming that the disinformation campaigns of owners of capital against a sensible taxation of mammoth assets had the wide support of the media landscape.
Current discussions around wealth-oriented taxes seem dominated by the illusion of shock and fears of impoverishment. This recalls the extremely wealthy banker Hermann Horwitz who often woke up in the middle of the night to assure himself of his wealth and certify the balance. The constant anxiety of being on the breadline finally drove Horwitz into madness, the historian Sandgruber wrote.
The facts are repeated as in a prayer wheel to fight the illusion of shock. Only the richest 5 percent of households are affected by a tax allowance of 1 million Euros from wealth- and inheritance taxes. The other 95 percent are not weighed down. The richest percent receives 8000 Euros monthly from their assets income. Although only a few households are concerned by these taxes, the wealth is concentrated very strongly at the top – with the highest thousandth of society.
MAJORITY- OR ELITE-ORIENTATION OF ECONOMIC POLICY
Great political-economic challenges face us in the seventh year after the outbreak of the crisis. The economy will not automatically be in full swing or move into gear. A surge of private investments has not occurred on account of uncertain expectations. Unemployment increases, a deflationary spiral threatens and the resources for necessary spending in nursing and health care and for future-oriented public investments are lacking.
The feeling prevails that the rich “can be models” and continue handing down their mammoth wealth over generations while efforts to relieve the broad population (for example by means of lower income taxes) are prevented because a counter-financing through wealth-oriented taxes is vehemently opposed by representatives of capital owners. Consequently the conditions are given for a further rise of inequality and great social tensions – as in the one-thousandth society 100 years ago.
The proposals for a political-economic turn are on the table. The jobs-hostile fiscal imbalance between labor and wealth must be balanced. Work incomes should be relieved and counter-financed by taxes on mammoth wealth. The introduction of an inheritance- and gift tax is unconditionally necessary for more equal opportunities.
A massive reduction of working hours – besides many other positive aspects – would help in combating unemployment. A golden investment rule would encourage public investment with funds used in social and ecological innovation. Building social housing should guarantee affordable housing and prevent excessive rental incomes of rental owners.
All this would contribute to forming future society in the public interest- and not according to the interests of the richest thousandth.
Kalle Lasn, “The Creative Destruction of Neoclassical Economics,” 406 pp, January 2015
Thomas Piketty's 1-hour 2014 presentation on inequality of incomes and assets http://mediapage.rtcnow.com/event/akwien/140704-piketty/en
Video: Capital in the 21st Century, 1hr 30min
Thomas Piketty, May 30, 2014 http://www.youtube.com/watch?feature=player_embedded&v=heOVJM2JZxI#t=0
MYTH: “THE RICH HAD TREMENDOUS LOSSES IN THE CRISIS”
By Attac, Poverty conference and Beigewum
[This article published on December 29, 2014 is translated from the German on the Internet, http://blog-arbeit-wirtschaft.at
Only a few years after the downward slide of the markets, the rich are richer than they were before the crisis. The total economy and especially the incomes and assets of the large majority of the population have deteriorated in the same time period.
MAMMOTH ASSETS AND RISKY INVESTMENTS
Initially housing prices sank in the US. This affected nearly all households. However the subsequent collapse of stock prices impacted the wealthy in particular. But these losses turned out to be less in relation to their total assets than those of poorer households. As a resu9lt, the social inequality rose. Since then, housing prices have only moderately recovered while a new gold-digger mentality breaks out on the stock markets and bond markets.
Similar phenomena can also be seen in Europe. Savings accounts or construction contracts, classical forms of investments for the less well-to-do, stagnate or even lose value on account of low interests. On the other hand, the wealth components held by the rich experience an enormous boom. The Austrian stock index ATX nearly doubled since the beginning of 2009 from 1400 to around 2600 points. The German DAX soared even more strongly.
BANK DEBTS BECOME STATE DEBTS
After the Lehman Brothers investment bank in the US went bankrupt in the fall of 2008, the rotten credits and credit guarantees of European banks gradually came to light. The banks lost trust in their mutual ability to repay credits and did not lend money to one another anymore. What bank was really “system-relevant” and what banks could go bankrupt could hardly be answered because of the strong linkage of the international banking system. Even banks that survived the cancellation of their own rotten credits could be indirectly impacted by the collapse of other credit- and insurance institutes.
Soon it was clear that the banking system could not be saved without state support measures. These interventions basically saved the whole European financial sector and the mammoth private assets. The costs for the bank bailouts and the recession increased state debts enormously. This was clearest in Ireland whose debt state skyrocketed from 25% of the gross domestic product in 2007 to 91% in 2010.
THE POOR PAY THE BILL OF THE CRISIS
Austerity policy was carried out to lower the state debts. This struck poorer households very intensely. The poor pay the bill for the bailout of the wealthy. This disparity is most blatant in Greece. The Troika of the European Commission, the European Central Bank and the International Monetary Fund forces an “inner devaluation” on Greece, wage cuts for working persons and lower state spending. At the same time the Troika passively sits back and watches as Greece’s rich hide their untaxed money in Switzerland. Still Greece is only one example. In all Europe, the social state is dismantled. That institution is weakened that best protects people from poverty and pensions from the whims of the financial markets.
To correct this redistribution to the rich, politics must make the rich pay the costs of the crisis and its combating through higher taxes on their wealth. But that is not happening at all. The rich and their wealth have long been the winners of the crisis.
This article is the first in a series of four from the new book “Myths of Wealth. Why Inequality Endangers Our Society.”
MYTH: “THE RICH CREATE MANY JOBS” [HTTP://BLOG.ARBEIT-WIRTSCHAFT.AT
Why should the wealthy create more jobs? Small- and medium size firms create jobs.
MYTH: “EVERYONE CAN BECOME RICH”
Women lose out. Wealth tax as gender debate.
MYTH: “THE RICH PAY VERY HIGH TAXES”
No one pays 50% income tax. The tax system is proportional, not progressive
THE NEW MAGICAL TRIANGLE OF SUSTAINABLE ECONOMIC POLICY
By Kenan Sehovic, Jan 8, 2015 [http://blog.arbeit-wirtschaft.at
Prosperity: more than the economy
From the Old to the New Magical Triangle
Synergies and Goal Conflicts
From Concept to Policy Recommendation
BATTLE AGAINST TAX EVASION
By Markus Marterbauer
[This blog-article published December 17, 2014 is translated from the German on the Internet, http://blog.arbeit-wirtschaft.at
. The December edition of Arbeit & Wirtschaft focuses on “Global Money Concealment,” tax fraud, tax evasion and the meaning and purpose of taxes in general. www.arbeit-wirtschaft.at.]
Gabriel Zucman cautiously estimates the wealth deposited in international tax havens at 5.8 trillion Euros. The “infernal trio” consisting of the British Virgin Islands, Switzerland and Luxemburg is the center of European tax evasion. In this connection, state budgets worldwide lose at least 130 billion Euros in revenue from income-, inheritance- and property taxes.
Furthermore, the costs of the illegitimate activities for “tax optimization” of corporations must be added. According to a rough estimate, the number of unemployed youths in Europe could easily be cut in half with part of these funds missing in EU countries.
CAKES GROWING MORE SLOWLY
This comparison shows the burning distribution conflict: between the millionaires and the multinationals on one side and people dependent on the returns of their labor power on the other side. The unacceptable initial situation is expressed very crassly in the strong growth of effortless property income and the enormous concentration of wealth with simultaneous stagnation of income from labor and increasingly precarious working conditions. The social conflicts over the distribution of prosperity will certainly become more intense. When the cake grows more slowly, the conflict over its distribution becomes more strident.
Austria does significantly more than other states to combat youth unemployment, to guarantee social security for all people and not distribute the fruits of the economy completely unfairly. However Austria is also a concrete player in obstructing the battle against tax evasion:
• It is shameful when the German government cites “technical reasons” to delay the automatic information exchange between European tax authorities another year.
• Austria has signed double taxation agreements with other countries that “lead to a double non-taxation in practice” as Gabriel Zucman correctly diagnoses.
• For earners of wage incomes, it is normal when employees report direct incomes and income taxes to the internal revenue office. This is not the case with interest- and dividend income because of old-fashioned banking secrecy.
• Tax evasion is even more incredible when some firms as in the hospitality or restaurant business simply do not pay the sales tax charged to consumers.
FINANCING BEYOND OUR MEANS
For decades, the financial system and the wealthy in Austria have lived above our means. Possibilities for social progress arise when the claims of the rich on the gross domestic product are pushed back. Therefore the battle against varied forms of tax evasion must be a central task of political-economic cooperation in Europe. Luxemburg and its former Prime Minister Jean-Claude Juncker were rightly denounced. The true conclusions should be drawn: automatic information exchange, building an international land register and financial taxes.
Fighting tax evasion in Austria together with the fiscal encumbrance of mammoth wealth and inheritances is the central element of the tax reform concept. Wealth taxation and the relief of labor income are two sides of the same coin.
This article comes from “Arbeit & Wirtschaft.” The December issue focuses on “Global Money Concealment” in tax evasion and the meaning and purpose of taxes in general. www.arbeit-wirtschaft.at