Financial Times Europe - 13.11.2019

Wednesday13 November 2019 ★ FINANCIAL TIMES 3

B R E N DA N G R E E L E Y— WASHINGTON

The debate over whether the US should
impose a federal tax on wealth has
gripped US politics after Democratic
candidate for president Elizabeth War-
ren tabled the plan as one of the pillars
of her campaign.
Ms Warren, pictured, suggested it as a
way ofpaying for her healthcare propos-
als. But the prospect is uncomfortable
for at leastone US billionaire.Microsoft
founderBill Gates ast weekl sked if Msa
Warren wouldsit down with him to dis-
cuss the plan; she responded that she
would love to explain to him exactly
what he might pay.
Here is what they might discuss.

What is a wealth tax?

Mostgovernment revenue comes from
taxes on income, such as personal sala-
ries and corporate profits. The govern-
ment also treats returns on investments
as income, via a capital gains tax, but
there is currently no tax on the principal
of those investments, on wealth itself.
Individual US states tax homes and
commercial property to pay for primary
schools and local police departments,
and the federal government assesses a
tax on estates of more than $11m.
A federal wealth tax, however, would
hit a household’s complete net worth
every year, falling on all assets including

homes, portfolios of stocks and bonds,

art, land and yachts.

How much would Gates pay?

Ms Warren hasproposed hat her cam-w

paign calls an “ultra-millionaire” tax of

2 per cent on assets above $50m, plus a

1 per cent “billionaire surtax” on assets

above$1bn.

Mr Gates isworth $107bn, according

to Forbes. Ms Warren’s campaign says

he would pay $6.4bn next year.

Emmanuel Saez and Gabriel Zucman,

economists from the University of Cali-

fornia at Berkeley who designed the

ultra-millionaire tax, have calculated

that if the 3 per cent billionaire surtax

had been in place since 1982, Mr Gates

would have been worth $36bn last year.

Bernie Sanders, another leading can-

didate for the Democratic nomination,

has an even more ambitiousplan. It

starts at 1 per cent on net worth above

$32m, and rises in steps until it arrives

at 8 per cent for wealth above $10bn.

The Sanders campaign says that

would put Mr Gates’ bill to a Sanders

administration at $8.3bn, and that the

plan would cut the wealth of billionaires

in half over the next 15 years.

Why tax wealth?

Both candidates point out that wealth

inequality is worse in the US than in any

other developed country. Mr Saez and

Mr Zucman looked atrecords of taxes

paid on capital gains, and used them to

infer the value of the underlying assets.

They found that the share of household

wealthheld by the richest 0.1 per cent of

US families rose to 22 per cent in 2012,

from 7 per cent in 1978. The concentra-

tion has not changed; it is possible that

richer families have seen lower returns

on wealth, or that middle-class families

have been paying down their debt.

Mr Sanders says thisis worth address-

ing, as the last decades of economic pol-

icy have seen a “massive transfer of

wealth” from the bottom to the top. Ms

Warren emphasises that “a family’s

wealth is also an important measure of

how much it has benefited from the

economy and its ability to pay taxes”.

Both candidates have pointed to reve-

nue from their wealth taxes as a way to

offset some of their spending plans,

including government-run healthcare

for all. In a contentiouspublic debate ni

October, Mr Saez said that wealth cre-

ated power, which skewed politics. But

Lawrence Summers, an economist who

was secretary of the Treasury under Bill

Clinton, responded that it took only

millions to be influential in politics, and

that Mr Gates had not been able topre-

vent an antitrust case from the federal

government against Microsoft.

Mr Gates and other billionaires have

pointed to their charitable contribu-

tions as a better use for their wealth.

Have other countries tried it?

They have, and many of them ended the

experiment. In 1990 12 OECD countries

relied on wealth taxes; by 2017, there

were only four. The wealth taxes were

expensive to administer and even

though household wealth grew, wealth

tax revenues did not, suggesting wide-

spread avoidance and evasion.

Mr Saez and Mr Zucman

have said that the design

of a wealth tax is impor-

tant. Countries share

more data than in the past,

and it has become easier to

estimate asset values,

making evasion more

difficult. Social

norms also play a

role; the wealthy

might have lost a

sense of shame

about evading

taxes.

“The attitude

o f p e o p l e i n

power matters a lot,” said Mr Saez.

Could a wealth tax become law?

The political hurdles are high. Ms War-

ren must see off rivals who say her pro-

gressive policies will fall flat with the

wider electorate, and even if she wins

the White House it is likely she would

need a big Democratic majority in Con-

gress to see her proposals through.

And then there is the US constitution.

The16th amendment ives Congressg

the power to collect taxes on incomes. If

a wealth tax is a tax on “imputed

income” — the potential returns that

people could earn from investing their

wealth — then it is protected under the

16th amendment. If not, the body of the

constitution states that “direct taxes

shall be apportioned among the

states... according to their respec-

tive numbers”, although it is not clear

what a direct tax is.

Ms Warren’s cam-

paign says constitu-

tionalscholars believe

her tax to be consti-

tutional.

It is likely to

be challenged,

a n d b ro u g h t

before a conserv-

ative-leaning Supreme

Court.

A I M E W I L L I A M S— WASHINGTON
L AU R A P I T E L— ANKARA

Ahead of a meeting today at the White
House with US president Donald
Trump, Turkish leader Recep Tayyip
Erdogan acknowledged the relation-
ship between the two countries had
gonethroughsome“painful”times.

Last month, Mr Trump suspended talks
on a $100bn trade deal and promised to
destroy the Turkish economy after Mr
Erdogan sent troops into north-east
Syria to attack US-allied Kurdish mili-
tias. Turkey agreed to halt the offensive
a week later but Mr Erdogan still faces
the threat ofsanctions from US lawmak-
ers who were infuriated by the assault.
Now the Turkish president hopes the
two leaders can once again find com-
mon ground. “Despite the foggy
weather in our relationship, we are
agreed on the need to solve our prob-
lems and improve our relations,”he said
ahead of the meeting at the Oval Office.
“We want to embark upon a new era in
security issues for both countries.”
Despite antipathy towards Turkey
among many in Washington, Mr Trump
and Mr Erdogan have cultivated a
strong relationship based on a shared
appreciation for transactional politics.
Mr Erdogan is the type of strongman
leader that the US president is often said
to admire and the two men have had a
succession of phone calls.
Several of those calls have culminated
in diplomatic victories for Mr Erdogan
— including what Mr Trump’s critics say
amounted to a “green light” for Mr
Erdogan’s invasion of north-east Syria
when the US moved its troops back from
the Turkish border.
Mr Trump’s decision to withdraw the
troops provoked anger from US politi-
cians, including Republican lawmakers
normally aligned with the president,
such as Senator Lindsey Graham.
In response, the US House of Repre-

sentatives last month passed a bill set-

ting out harsh financial penalties for

Turkey, including freezing the assets of

senior Turkish officials, banning arms

transfers to the country and threatening

large Turkish banks with big fines. US

senators have sponsored a bill putting

forward similar measures.

Mr Erdogan has said he plans to use

today’s meeting to raise an ongoingUS

court case against one of Turkey’s larg-

est banks, Halkbank, for alleged

money-laundering and Iran sanctions-

busting. The two men are also expected

to discuss Ankara’s decision in July to

take delivery of a Russian missile

defence system called the S-400.

In private, US officials said the pur-

chase does qualify as a “significant”

transaction with Moscow under the

Countering America’s Adversaries

Through Sanctions Act, which aims to

stymie Russian influence. So far, the

Trump administration has refrained

from enforcing the sanctions, though

many lawmakers are in favour.

According to one state department

official, the US is still seeking to con-

vince Turkey, a Nato member, to aban-

don the system. Turkey should “never

have acquired [the missile system] in

the first place”, the official said. “There’s

still work to get the Turks to walk away.”

White House national security

adviser Robert O’Brien piled the pres-

sure on Ankara on Sunday: “If Turkey

doesn’t get rid of the S-400... there

will likely be sanctions.”Punitive meas-

ures could hit Turkey’s economy which

is still recovering from a currency crisis

that wiped almost 30 per cent off the

value of the lira last year.

Mr Trump wants Turkey to buy the

US-manufactured Patriot missile sys-

tem and abandon the S-400. But while

Mr Erdogan said Ankara was still open

to acquiring the Patriot system, he sug-

gested the Russian purchase was not up

for discussion.

How a wealth tax would have hit

US billionaires

bn

Source: Brookings Papers

Je Bezos, Amazon

Bill Gates, Microsoft

Warren Buett,

Berkshire Hathaway

Mark Zuckerberg, Facebook

Larry Ellison, Oracle

Larry Page, Google

Charles Koch, Koch Industries

Sergey Brin, Google

Michael Bloomberg,

Bloomberg LP

   

Share of total household

wealth ()









   

Top 

Top 

Top 



 wealth

With a 

wealth tax

since 

With a 

wealth tax

since 

Wealth concentration

in US

Wealth tax plans raise concerns of billionaires

Democratic candidates’ proposals intend to tackle what they say is the worst income inequality of any developed nation

Turkey

Erdogan hopes to heal

‘painful’ times with US

A L E X BA R K E R— LONDON

Roula Khalaf has been appointed the
next editor of the Financial Times, suc-
ceeding Lionel Barber, who is stepping
down after a 14-year tenure that put
the news organisation on a profitable
footing even as its traditional print
businesswasupended.

In an email to staffyesterday, Mr Barber
announced his 34-year career at the
paper would end in January when he
leaves “the best job in journalism” and is
replaced by his deputy,Ms Khalaf.
Speaking to a packed newsroom, Mr
Barber said he was proud of “restoring
the gold standard in FT journalism” and
building a sustainable business during
“tumultuous times”. After more than 14
years, he said it was a “natural moment”
to hand ver to Ms Khalaf, adding thato
“she is fair, she is wise, and she is tough”.
Ms Khalaf has held the FT’s second
most senior editorial post since 2016.
Her career at the newspaperincludes

running the FT’s 100-strong network of

foreign correspondents and leading its

Middle East coverage during the Iraq

war and the Arab uprisings of 2011.

Born and raised in war-torn Beirut,

Ms Khalaf will be the FT’s first female

editor since it was founded in 1888. She

said she was “thrilled”to l ead “the great-

est news organisation in the world”.

Tsuneo Kita, chairman of Nikkei, the

FT’s proprietor, said Ms Khalaf’s 24-

year career at the paper had proved “her

integrity, determination and sound

judgment... I have full confidence that

she will continue the FT’s mission to

deliver quality journalism without fear

and without favour.”

Mr Barber, 64, oversawa shift away

from a business model based on print

advertising that underpinned the FT’s

business for more than a century, build-

ing a digital publishing strategy and

developing a readership of more than

1m subscribers.

The FT also came under new owner-

ship in 2015 after it wasbought yb

Nikkei Group, Japan’s biggest media

organisation, for £844m from Pearson,

which had been its home since 1957.

Despite adecline in print sales, the FT

under Mr Barber returned to the black,

reporting £25m profit last year on reve-

nues of £383m. Subscriptions account

for roughly 60 per cent of content reve-

nue, and about 70 per cent of readers are

outside the UK.

Ms Khalaf’s challenge is to uild anb

international subscription base further,

amid fierce competition fromdigital

start-ups. Ms Khalaf is a French and Ara-

bic speaker who studied in the US before

starting hercareerat Forbes magazine.

Media

Khalaf appointed FT’s first female editor

DA N I E L S H A N E— HONG KONG

JA M I E S M Y T H— SYDNEY

Firefighters battled scores of blazes in

eastern Australia yesterday and resi-

dents in Sydney and Brisbane were

urgedtostayindoorstoavoidablanket

of hazy smoke, as the country was hit

by one of its most severe wildfire emer-

genciesinadecade.

States of emergency have been declared

in New South Wales and Queensland as

the authorities urged residents to evac-

uate the affected areas or be prepared to

leave their homes at short notice.

The treacherous conditions were

underlinedyesterday when alarge blaze

took hold in the Sydney suburb of North

Turramurra, only 25km from the cen-

tral business district. Aircraft doused

houses with bright red flame retardant

as firefighters battled to bring thesitua-

tion under control.

“Everything that can be done is being

done to prepare for [the] incredibly

dangerous fire conditions,” tweeted

Scott Morrison, Australia’s premier.

In New South Wales, the worst affec-

ted state where more than 60 fires are

burning, authorities have warned of the

“catastrophic” danger from thefires.

The state’s rural fire service said at

least a dozen homes had been destroyed

or damaged by firesyesterday, while

dozens of blazes continued to burn

throughout the evening, with nine

blazes listed as emergency alert level

“out of control” fires.

Sydney residents were urged to stay in

their homes to avoid the air pollution

caused by a dense smoke haze that

enveloped the city.

Authorities hope a change in the wind

direction and cooler temperatures

could bring some relief.

Three have died and hundreds of

homes have been destroyed s some ofa

the fiercest bush fires inyears threaten

big metropolitan centres as well as the

Blue Mountains heritage area.

“We are experiencing tinder boxlike

conditions across much of the state and

all it takes is one spark to start a fire that

may burn for days,” said Mike Wassing,

acting commissioner for the Queens-

land fire service.

Bush fires are a perennial problem in

eastern and southern Australia during

the summer months.But the country’s

meteorology bureau has said that cli-

mate change is “influencing the fre-

quency and severity” of wild fires.

The role of climate change in causing

theextreme weatherhas spurred fierce

debate in Australia, which has suffered

severe drought in recent years and

record high temperatures. Some politi-

cians have, however, rejected efforts to

link the fires to climate change.

“We have had fires in Australia since

time began, and what people need now

is sympathy, understanding, and real

assistance,” Michael McCormack,

Australia’s deputy prime minister, told

ABC radio.

States of emergency

Australia battles ‘catastrophic’ wildfires in east

I N T E R N AT I O N A L

M E H U L S R I VA STAVA— TEL AVIV

Israel assassinated a senior leader of an

Iran-backed militant group in the Gaza

Strip in an air strikeyesterday morn-

ing, prompting dozens of retaliatory

rockets and concerns of a new escala-

tion in hostilities with the Palestinian

territories.

The Israeli military said it had killed

Baha Abu al-Ata of Palestinian Islamic

Jihad, one of several militant groups

operating in the blockaded territory. It

said Ata was a “ticking time bomb”

responsible for several rocket attacks

into southern Israel in the past few

months.

Militants in the Gaza Strip responded

with rockets, some of which were inter-

cepted by Israel’s antimissile system,

prompting concerns of a revival of

attacks after a period of relative calm.

“Israel is not interested in escalation,

but we will do everything required to

protect ourselves,” Prime Minister Ben-

jamin Netanyahu told reporters at mili-

tary headquarters. “This could take

time. What is needed is stamina and

coolheadedness.”

Assassinations of senior leaders in the

Gaza Strip are rare and considered a

serious escalation. Jonathan Conricus,

an Israel Defense Forces spokesman,

said the decision to kill Ata was made

after Israeli intelligence intercepted a

plot that involved him and the use of

snipers, improvised explosive devices

and rockets against Israeli soldiers.

The air strike should not be seen as a

return to a “strategy of targeted kill-

ings”, he said.

The air strike targeted Ata’s home at

about 4am and also killed a woman liv-

ing there, the Gaza health ministry said.

The condition of Ata’s children is

unknown, but local media said they

were also injured in the original strike.

Islamic Jihad immediately promised

to retaliate. The group has an arsenal of

thousands of rockets, some of which are

considered accurate enough to target

Israeli cities. “Our inevitable retaliation

will rock the Zionist entity,” the group

said in a statement.

Islamic Jihad is a rival ofHamas, the

militant group that controls the Gaza

Strip. In recent months Hamas has been

involved in behind-the-scenes negotia-

tions with Egyptian intermediaries to

broker a ceasefire with Israel.

Giora Eiland, a former head of

the Israeli National Security Council

and a Major General in the military

reserves, said the risk of an escalation

would increase dramatically if Palestin-

ian rockets led to Israeli deaths

or prompted Hamas to join in the

retaliation.

Islamic Jihad

Israel braced for attacks after killing Gaza militant

Grief: Palestinians carry the body of Islamic Jihad commander Baha Abu al-Ata during his funeral in the east of Gaza City yesterday Mohammed Saber/EPA-EFE—

‘Fair, wise and

tough’: Roula

Khalaf succeeds

Lionel Barber as

editor of the FT in

January next year