Peter Englisch is a Senior Partner and Shareholder at PwC Germany as well as the Global Family Business and EMEA Entrepreneurial and Private Leader.
Talking or writing about this topic is always a tricky task. The subject is sensitive, emotionally charged, and can easily polarize depending on the mindset, background, or motivation of the people involved. First reactions typically range from a very positive recognition of the achievements of the ultra-wealthy to very negative feedback according to how the individuals in question acquired their wealth and the ways they choose to invest or spend it. This essay is intended to rethink the discourse regarding taxation of super-rich individuals, particularly centi-millionaires — those with investable assets of more than USD 100 million.
In today’s polarized world, with increasing social imbalances, global environmental issues, and a constantly growing and aging population, it is not a surprise that the role and responsibility of centi-millionaires, the new class of super-rich, is challenged by the public, NGOs, and governments. The course of the discussion is mainly driven by the idea of redistribution, higher taxation, limiting their non-legitimate power and influence, and challenging their lifestyle.
While I agree that these aspects are important, I also believe that we need to adjust the course and redefine the direction of these discussions. We should recognize and consider the ways in which centi-millionaires obtained their wealth, how they invest it, and if and how they contribute to alleviating societal, climate, and environmental issues.
For instance, there is a big difference between self-made and inherited millions and whether wealth is invested for good (such as by creating decent jobs, developing solutions on global issues) and donated for philanthropic purposes (for example into education, healthcare, culture, environment) or simply spent on a luxurious, private lifestyle.
I am convinced that by changing the perspective and direction of the discussion on super-rich taxation, we not only avoid further emphasizing a societal binary but gain more common objectives and consensus while unlocking the enormous potential of this group to contribute to fundamental global challenges.
“I believe that every right implies a responsibility; every opportunity, an obligation; every possession, a duty” is a famous quote by John D. Rockefeller, the richest man globally in his time. I believe his message still stands true and needs to be taken in the current context.
A new interpretation of this concept may lead us into a good direction if we start focusing more on the total impact (positive or negative) that centi-millionaires create with their actions or investments. In the past, it was quite difficult to define and measure those positive or negative impacts. But today, the sustainability reporting standards for companies has evolved and could serve as a solid basis for interpretation, which can be further developed.
In addition, there is another fundamental and systematic challenge. According to the annual Edelman Trust Barometer, distrust is the new default mindset in society and breeds polarization. Let’s have a look at two major findings:
The fundamental argument for redistribution of personal wealth of the super-rich via higher taxation is refuted by these findings, as the public tends to consider businesses to be more competent and trustworthy than governments in most countries.
Of course, as good citizens, we all need to pay our fair share of taxes so that our governments have sufficient budget to invest in public services, infrastructure, education, security, healthcare and other services. However, there is a great correlation between the willingness to pay taxes (corporate, income, estate, and inheritance taxes) and the degree of trust in the system, which is constantly eroding. Businesses and entrepreneurs are the ones solving important issues, and governments should set clear frameworks and predictable conditions under which they can operate their businesses, invest their wealth for good, or support philanthropic causes.
In my daily work with centi-millionaires, the topic of purpose and impact has become more prevalent than ever before and the vast majority of super-rich individuals want to create a legacy of purpose, meaning, and impact. Taxation can and should play a key role in steering the direction based on the UN’s Sustainable Development Goals and further developing sustainability reporting standards as well as the specific needs of countries. A well-designed tax system for centi-millionaires should lead to the alignment of interests, not polarization. It should not lead to instability, which we can see for instance quite often in the context of inheritance taxes for wealth fully invested in operating businesses.
Of course, I am not advocating for more general tax benefits for the already super-rich. I want to focus the attention on a more balanced view, where investments and activities for good are treated differently from liquid assets, luxury goods, or speculative investments.
Centi-millionaires and government should try to better understand, support, and collaborate towards common goals and based on shared values. Is this realistic? I truly believe this is possible, but it needs less of an ideological and more of a pragmatic approach and long-term commitment beyond the next election.
The impossible seems to be impossible until somebody does it. So let’s get started by changing the course of the discussion now.