The past year was not exactly smooth sailing for investors. The continued fallout from Covid-19, national lockdowns and new variants were followed by an uneven global recovery, renewed fears over rising inflation, prophecies of a market correction and a surge of geopolitical instability following America’s clumsy withdrawal from Afghanistan. Who would predict what 2022 has to offer?
One of the less reported stories of this year is the apparent shift in the wider public mood towards HNWs. Against the backdrop of the recent finding that the world’s nearly 3,000 billionaires have seen their wealth surge by more than $5.5 trillion since the start of the pandemic, it appears the weather is changing.
In July, the Pew Research Center released the findings of a major survey on how Americans feel about the ultra-wealthy. It found that a growing share of Americans now feel it is a ‘bad thing’ that some people have amassed personal fortunes of $1 billion or more. The percentage who say they feel this way is up from 23 per cent in January 2020 to 29 per cent. Only 15 per cent believe the existence of billionaires is a ‘good thing’, with the most popular option being ‘neither good nor bad’.
Yet it is the generational shifts that I found most striking. Drill down into the data and you will find that 50 per cent of people aged 18–29 felt that billionaires are a ‘bad thing for the country’, up from 39 per cent in 2020. This compares to only 19 per cent of over-65s, revealing a huge gulf between the young and old.
To me at least, this is yet more evidence after very high levels of support among Zoomers (Generation Z) for left-wing parties in the US and Britain that the emerging Zoomers, who often struggle to reap the benefits of capitalism, are far more receptive to anti-wealth, pro-tax messages. Many of these voters have struggled throughout the crisis, finding it difficult to get on the property ladder and being the most likely to have lost their job during the pandemic.
As we look ahead to 2022, they may well have further opportunities to voice these views. There is an old saying that what starts in America tends to happen elsewhere. In recent weeks, amid a broader debate about ‘progressive taxation’ in the US, Senator Elizabeth Warren has appealed to these views by reigniting her push for a tax on the wealth of the richest Americans, calling out Amazon founder Jeff Bezos in the process.
Less than two years ago, during her campaign for the US presidency, Warren proposed a 2 per cent annual ‘ultra-millionaire tax’ on wealth above $50 million. ‘I want to see us tax wealth, however your wealth is tied up,’ Warren said to CNBC. ‘It shouldn’t make a difference whether you have real estate, or whether you have cash, or whether you have a bazillion shares of Amazon… Whatever form you have your assets – diamonds, yachts, paintings – I think there ought to be a tax on that annually.’
Warren has since fleshed out her proposals to introduce what she calls a ‘two-cent wealth tax’ that applies to the wealthiest 100,000 American households, ‘with a few cents more for the billionaires’. She claims it would raise $3 trillion in revenue over the next decade and is supported by 68 per cent of Americans, including a majority of Republican voters.
Given Joe Biden’s lack of a clear majority, these proposals are unlikely to go through. But they do reflect a stronger appetite in politics for a broader move to tax wealthy individuals and families.
The enormous fiscal impact of the Covid-19 crisis has changed the game, as Western politicians from Biden to Rishi Sunak look for ways to plug the holes by taxing the rich. Many of these leaders are also caught in a broader political realignment, with Biden needing to appeal to working-class non- graduates and Sunak and Boris Johnson needing to hold many of the same groups. Targeting tax at high earners in the context of a unique crisis appears to be where they are heading.
Biden has already announced measures to help the IRS with its tax enforcement, and through his recent tax plan he is exploring ways of raising the top marginal tax rate, capital gains tax and making changes to inherited property. Progressives within his party such as Warren are urging him to go much further. Meanwhile, in countries such as the UK we already know there will be significant increases in the rate of corporation tax and are now hearing talk of further changes to capital gains tax and pensions.
The way these issues develop will have a significant impact on the political landscape. After all, 2022 has a busy political calendar with a crunch set of mid-term elections in the US and rumours of an earlier than expected general election in early 2023 in the UK, for which the campaigning would begin in late 2022. In both those contests, how we price-in the crisis will be a major theme and, within that context, UHNWs may find themselves in the firing line.
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