The Global Luxuries Tax

In the twenty-first century we all travel via airplanes more than we ever did before and a lot more than we strictly need to, with half a million people in the air at any one time. Bar a few exceptions, the bulk of air travel is either for reasons of work or leisure. The latter has grown at a much faster rate than the former over the last 50 years, when going abroad for a holiday was the prerogative of a very small selected (lucky) few. Anyone today who gets on an airplane to go on vacation is clearly exercising their desire for a luxury good, hence they would be a good candidate for contributing to the GLT. Accidently, this will also go some way towards solving the moral dilemma, originally set by Ted Honderich, of whether someone should go on holiday to Venice or give the money to Oxfam instead. Honderich wants to convince us to forego the trip to Venice, but of course few people are prepared to make that kind of sacrifice, and understandably so. The GLT on air travel allows us to go on vacation to Venice, enjoy the city immortalized by Canaletto, while in the process contributing to the solution of global poverty. A rare case of having your moral cake and eating it too.

Adding US $ 5 per air ticket would generate a considerable source of revenue for the Global Poor. If we take the EU as an example, between 2009 and 2010 the total number of passengers travelling by air in the EU increased to 777 million. If each passenger was charged an extra $ 5 for the pleasure and convenience of travelling by air, this tax alone would contribute US$ 3885 million to the global fund.⁷

Of course not everyone travels for pleasure. There are many who also travel for work, in which case it might seem odd to include their activity as a luxury. These concerns can easily be countered. First of all, adding US$ 5 per air ticket will not make much difference to business travellers, since in the majority of cases those who travel for work related reasons don’t pay for their travels out of their own pocket, instead the business they represent picks up the bill. In fact, there is an argument to be made that anyone travelling business class should pay an added global luxury tax of US$ 30.

Secondly, it could be argued that adding air travel to GLT may have the unintended consequence of giving an incentive for businesses to find an alternative to sending their employees on long journeys that require taking to the air, for example by investing in video-conferencing technology. If this was indeed an unintended consequence of a GLT on air travel, then this development is to be welcomed, as it would contribute towards cutting carbon emissions and therefore make a positive impact on the environment, and indirectly on the global poor who are most at risk from climate change. The fact that video-conferencing technology is an alternative to work-related air travel only strengthens the argument that air travel is a luxury, in the sense that a luxury good is superfluous, something we can do without. Whether it is for leisure or for business, air travel is a choice, not a necessity.

The idea of an international tax on financial transactions has been on the agenda for a while, for example in the form of a Tobin Tax. Originally defined as a tax on all spot currency conversions, the Tobin Tax is now no longer confined to the currency markets, but includes trading in shares, bonds and derivatives.⁸

It may be necessary to distinguish between two types of financial transactions, namely transactions that are necessary and those that are speculative. Necessary Transaction are those performed by any citizen in the modern world, for example buying foreign currency—perhaps before travelling by air to an academic conference in Venice. The levy on these transactions can be minimal, so much so that one would not even notice this at the end of the month, although they would add up. After all, units are made up by fractions, so even an insignificant amount of tax on a single transaction, even as small as US$ 0.05 can make a difference. The money for the global fund will be generated by the volume of transactions, so that the ordinary citizen will not even notice they are being taxed.

The GLT on financial transactions undertaken for speculative reasons would be much greater, in part because the motivation behind the transaction is not a necessity (hence by definition a luxury), and in part due to the much higher number of transactions incurred by financial institutions. It is crucial that GLT on financial transactions are Universal rather than Partial, in order to avoid the risk of Global Luxury Tax havens in remote parts of the world.

It is unlikely that the GLT on financial transactions will have the unintended consequence of giving individuals and institutions an incentive to hold back from doing a transaction, since the cost per transaction will be extremely small, and even the higher tax on speculative transactions levied will not deter the investors, given that financial institutions are among the richest groups in the world. Also, in a perverse way global financial institutions may even welcome a GLT on financial transactions, as this would make it possible for them to take the moral high-ground, and remind anyone listening, especially the activists of the Occupy Movement, that they are not always the bad guys, instead they are doing their part to help solve the problem of global poverty. For international finance institutions a GLT is a small price to pay for some moral capital.

Apart from Universal GLT, we must also consider Partial GLT. These are taxes that are levied only in certain parts of the world, specifically countries that enjoy a GDP per capita above a certain threshold.⁹ According to the International Monetary Fund, in 2010–2011, the country with the highest GDP per capita is Luxembourg (US$ 160,000) and the one with the lowest is the Democratic Republic of the Congo (US$ 217). For example, we could draw the line at US$ 10,000 per capita, hence Malaysia would be above the line at US$ 10,085 and Lebanon would be below the line at US$ 9,862.

All the countries within the EU are above this threshold. According to Eurostat, approximately 5.4 million children were born each year in the 27 countries of the European Union between 2008 and 2010. The GLT on procreation would tax each family for the birth of their child, perhaps as little as US$ 5. This would generate US$ 270,000,000 for the global fund from the EU alone.

The basic assumption behind this tax is that choosing to have a child is a luxury. This idea has a long history, indeed as Marx argued in his Economic and Philosophical Manuscripts of 1844: “There are too many people. Even the existence of men is a pure luxury; and if the worker is ‘ethical’, he will be sparing in procreation”. More recently Paula Casal and Andrew Williams (1995) convincingly argue that procreation may cause a public bad, since adding another human being to the planet will only worsen resource scarcities, in which case it may be legitimate to tax those who have children (See also Casal and Williams 2004). It may seem counterintuitive to classify having a baby as a luxury, since procreation is an integral part of the natural cycle, and what is natural cannot be a luxury. But closer analysis suggests otherwise. Even if one were to accept the dubious claim that having a family is a human need, it is important to distinguish between having a family and having a baby (or procreating). Having a baby is only one way to have a family; another way of having a family is by adoption. The difference between procreation and adoption is morally significant. In an era defined by overpopulation each addition to the human race carries negative externalities on non-consenting third parties, which is why having a baby should be taxed, while adopting a baby should not. In fact, a case could be made for parents to be given a financial incentive to adopt rather than procreate.

The GLT on procreation may need to be more nuanced than some of the Universal GLT we have considered so far, since it may not apply across the board as easily as a tax on air travel. For example, it may be desirable to exempt some people from the GLT on procreation. One group that should be exempt from GLT is victims of rape, for obvious reasons, or families whose newborn dies within the first year. Another group is women who live in countries where abortion is illegal, since they do not have the option of interrupting their pregnancy, although in such cases there may be some merit in making governments of countries where abortion is illegal pay for the GLT on procreation. But we don’t need to get too concerned about this issue here.