To save the planet - let's tax the rich

The Intergovernmental Panel on Climate Change (IPCC) has sent a final warning to humanity: if we do not halve greenhouse gas (GHG) emissions by 2030, we will have no chance of keeping global temperatures within 1,5°C above pre-industrial levels. Achieving this goal will be an extremely difficult task, but it is possible if we ensure that the world's richest pay their fair share.

In recent years, inequality has risen sharply. During the pandemic, when more than 160 million people found themselves below the poverty line, the richest 10% of people in the world doubled their wealth. The richest 10% of the world's population currently owns 52% of the world's income and 77% of the world's wealth, while the poorest 50% have 8% of global income and 2% of global wealth.

The gap continues to widen. Billions of people are suffering from rising living costs and stagnant wages, and with the coming recession, the prospects for greater prosperity look bleak. The world has never been so rich, yet most people suffer from chronic economic insecurity. This is a recipe for deeply polarized, dysfunctional societies, democratic decline, and a dangerously unstable world.

Economic inequality is reflected in climate inequality. As the IPCC notes, the 10% of households with the highest per capita emissions—that is, the wealthiest households globally—contribute up to 45% of GHG emissions based on household consumption. The bottom 50%, which is 4 billion people many of whom face severe energy insecurity, contributes only 13-15%.

Here, too, the gap is widening: the richest 1 percent - 63 million people earning at least $109.000 a year - are the fastest-growing source of carbon emissions. This is happening at a time when humanity is spending more than 1% of the remaining carbon budget every month to limit global warming to 1,5°C.

But the disagreement in the shows is only part of the story. As the new IPCC report points out, there is strong scientific evidence that an equitable approach to climate action, in which the benefits and the burden of the necessary changes are shared fairly, is vital to building public trust, without which the 2030 target would be practically unattainable.

This is consistent with our assessment at Earth4All. We predict that, unless synchronized actions are taken, inequality will continue to grow during this century, leading to increased social tensions and unrest and significantly complicating overcoming existential crises such as climate change.

Concentration of wealth leads to concentration of power, with the richest actors having disproportionate influence on elections and public policy. This undermines trust in democracy because it makes it difficult for governments to make long-term decisions that serve the common good. Countries with greater equality have higher levels of trust in government and better scores on education, health and longevity, obesity, infant mortality, crime and the environment.

As the IPCC report makes clear, a profound economic transformation will be needed over the next decade to prevent the worst effects of climate change. But this transformation can only be successful with broad public support based on a new social contract that provides for a fairer distribution of wealth and income.

Specifically, Earth4All proposes that by 2030, the richest 10% in all countries should have less than 40% of national income, and that their share should remain on a downward trajectory thereafter. Past experience shows that progressive taxation of both the income and wealth of individuals and corporations would be an effective means of achieving this.

This would mean targeting the assets of the wealthiest people, wherever they are, including tax havens, and also developing and sharing national asset registries, which are kept in various forms. Governments should also increase taxes on consumption related to GHG-emitting luxuries, on private jets for example.

In addition, we recommend introducing a universal minimum corporate tax rate close to the global average of 25%, well above the 15% rate agreed by the G2021 in 20. Transnational corporations should be subject to the same tax rates as national corporations, with uniform taxation of global profits based on each country's share of sales, employment and assets.

We also propose taxing extra profits in sectors such as energy. While the world was dealing with an energy crisis caused by the war in Ukraine, fossil fuel companies should not have been allowed to reap hundreds of billions of dollars in profits. In addition, governments must close international tax loopholes once and for all and end massive fossil fuel subsidies that now exceed $1 trillion a year. The IPCC estimates that removing subsidies could reduce greenhouse gas emissions by up to 10% by 2030.

Overall, governments should use progressive taxation to disrupt share buyback schemes. At a time when the world needs innovation to drive economic transformation, increasing shareholder returns must not outweigh investment in research and development.

It is crucial that any additional revenue generated from progressive wealth and income tax is used to protect the most vulnerable groups, support those displaced by the green transition, promote gender equality and overhaul the energy and food systems.

By easing social tensions and improving well-being, progress in tackling inequality would make democracy more stable and resilient, enabling better response to shocks and making rational long-term decisions for the common good, not just climate change. But as the IPCC has made clear - time is running out.

The author is the leader of the Earth4All project; is head of the Nobel Prize Outreach service

Copyright: Project Syndicate, 2023; translation: NR