World's Wealthy Pay a Price In Crisis
Tuesday, September 15, 2009
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 massive 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 vowed 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.