Wealth tax and a more equitable society

I have always believed that income inequality is more critical in facing the  economic problems of any nation, as compared to the growth of the Gross Domestic Product (GDP). Traditional economists still insist that the solution to inequality is by first increasing economic growth to the extent that the wealth of the upper class will “trickle down” to the poor. This theory has become highly controversial and there are many examples that show that it does not work.

The wealth of the rich, instead of trickling down to the poor, has only led to extravagant consumption by the ultra-wealthy. The so-called 1 percent of the society that are extremely wealthy and controls most of the country’s wealth splurge on such luxury items like super yachts, private planes, designer brands, ultra-expensive jewelry and rare wines.

None of these consumption generate any meaningful employment in the Philippines. The ultra rich also buy homes and apartments in foreign countries, spend their vacations in ski resorts and invest excess funds in foreign bonds.

One of the solutions to addressing the problem of income inequality is through the use of wealth tax in place of income tax. A carefully crafted wealth tax can serve as a strategic mechanism to limit income inequality and foster a more equitable distribution of wealth.

A wealth tax is a levy imposed on an individual’s net wealth encompassing assets such as real estate, shares of stocks and other valuable holdings.  Unlike income taxes that focus on yearly earnings, a wealth tax takes into account the cumulative wealth amassed over time. By directing attention to the assets of the wealthiest individuals, a well-structured wealth tax can act as a counterforce to the growing wealth gap and provide the necessary resources to address income inequality.

The problem of income inequality is not limited to poor countries. Even wealthy countries like the United States are prone to this problem. The rise of populism which results in the masses turning against the elite is a phenomenon that can be found in all countries rich and poor where the problem of income inequality has not been properly addressed.

The wealth tax has been pushed to the forefront of tax policy debates to combat wealth inequality. In the United States, Democratic presidential candidates Sen. Elizabeth Warren and Sen. Bernie Sanders both released proposals for a wealth tax as part of their 2020 platforms. These proposals were meant to address the rising income inequality and the rise of populism in the United States.

Sen. Warren’s tax plan featured a wealth tax rate of 2 percent each year on wealth over $50 million and 6 percent on wealth over $1 billion. Sen. Sanders proposed a more progressive wealth tax of up to 8 percent on net wealth over $10 billion.

Education remains a powerful tool for breaking the cycle of poverty and reducing income inequality. Redirecting resources towards improving the quality of public education, enhancing vocational training programs and expanding access to higher education can empower individuals with the skills to secure higher paying jobs.

The Philippine government would serve the needs of the nation in a better way by channeling all the confidential funds towards the construction of more classrooms, which each academic year we witness serious shortages of.

One of the significant benefits of a wealth tax is its capacity to generate revenues that can be strategically channeled into initiatives aimed at introducing income equality. For example, by allocating funds to education, health care and social welfare programs, a wealth tax can contribute to breaking down systemic barriers and creating a level playing field.

A substantial portion of wealth tax revenue can be earmarked for education, positioning it as a cornerstone in the fight against income inequality. By investing in accessible and quality education for all, societies can lay the groundwork for dismantling intergenerational cycle of poverty.  Education not only imparts essential skills but also empowers individuals to navigate the economic landscape, fostering greater equality of opportunity.

The lower classes should be given the opportunity to study in schools with the same level of quality as schools like the University of the Philippines (UP), La Salle, Ateneo and UST. UP is the only government-owned educational institution with heavily subsidized tuition fees. Ideally, UP enrollment should be limited to students coming from the lower classes. Instead the UP enrollment system has become bastardized and a big number of students come from the upper classes.  It is tragic that this excellent university with the original goal of educating the nation’s masses now has a parking problem due to an overflow of cars owned by its students.

Reducing income inequality in the Philippines is a challenge that must be overcome if we are to avoid the resumption of a populist movement.  The Philippines should adopt the wealth tax as its basic taxation model, give preferential treatment to children of the lower classes to enter high quality schools and ensure good governance and equal justice for all. All of this can start the Philippines on a transformative journey towards a more equitable society.

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