A marginal tax for ultra-rich to uplift poor (Part 1 of 3)

How much would it take to end grinding poverty in the Philippines? And where can funding come from? This three-part series proposes a marginal tax rate for the few ultra-rich to lift out of poverty millions of Filipinos.

So we begin with the question, how rich is the Philippine elite? Using the Credit Suisse Global Wealth Databook 20211 as guide, we have, as of 2020, a total of 626 individuals (about 10 busloads of people) have a combined wealth of ₱7.48 trillion. That’s a bit more than 7 followed by 12 zeroes. See Table 1.

Table 1. Estimated total wealth by wealth range

Wealth range Wealthy people Assumed average Sub-total
₱2.5B to ₱5B 345 ₱3.75B ₱1.294T
₱5B to ₱25B 217 ₱15B ₱3.355T
₱25B up* 34* ₱2.93T*
Total 626 ₱7.48T
*From Forbes 2020 data.


What form does this wealth take? Stock investments and securities. As of end-2021, the country’s Stock Market Capitalization is already at ₱18.08 trillion.2 Meanwhile, other financial securities are now at ₱573.89 billion. Combined, total financial wealth is now at ₱18.65 trillion.3 From the above table, less than a thousand rich people would have owned at least a third of these stock investments and securities.

In contrast, as of the first semester of 2021, 23.7% of Filipinos remain poor, that is, 21.14 million souls with less than ₱400 per day. 9.9% or 10.94 million don’t even have enough to meet daily nutritional needs.

If we choose to simply hand money to poor citizens equal to the poverty threshold, how much would it cost? ₱687 billion, or 3.7% of the total financial wealth. If the money we hand over depends on how poor they are, it would cost Philippine society even less: ₱155 billion,4 or 0.83% of the total financial wealth.

So how much would it take to end poverty? At least 0.83% of the country’s financial wealth, at most 3.7%.
Moreover, Stock Market Capitalization (SMC) is growing. Its total pre-pandemic 5-year average of annual growth in is still 3.88% as of 2020; the average growth since 1995, 13.2%.

The stock market has since recovered from its pandemic record low, and the average growth rate in securities other than shares is 13.36%.

Given the obscene growths in both wealth and poverty, isn’t a tax on wealth reasonable?

A flat annual 3% wealth tax levied on financial capital owners with ₱18.65 trillion will already yield ₱559.65 billion. Assuming that capital owners would take the payments for wealth tax not from the capital stock but from profits, the total wealth tax would be less than 5% of the gross operating surplus as of 2020 (which is about ₱5.77 trillion).5 But this would be enough to end poverty.

Of course, capitalists can argue that the gross surplus serves multiple things – recover the cost of capital (or replace depreciated capital), or more importantly, reinvest them. This argument does not hold water if we dig deeper into the consolidated accounts.

Another argument for a wealth tax is the massive net operating surplus (gross operating surplus less "consumption of fixed capital” or capital depreciation), which as of 2018 is ₱7.9 trillion (or 45.4% of GDP, versus 36.9% for wages).6 Meanwhile, the Gross Fixed Capital Formation (GFCF) of 2019 is at ₱4.96 trillion, which, if deducted from the net operating surplus of 2018 would still yield for capital owners a sum of ₱2.97 trillion – meaning, profits that became net earnings of capitalists have exceeded profits that went to investments by as much as 68.6%.7

Of course, since the distribution of wealth is highly unequal, we can even distribute the burden among capital owners as follows (with the proposed tax schedule of $r_{n+1}=\dfrac{r_n}{2}$, $r_0=5\%$, where $r_n$ is the interest of bracket $n$):

Table 2. Proposed wealth tax schedule

Credit Suisse Global Data Book8 Wealth Tax Calculations
Range (Php) Share of population Number Average wealth (million Php) Total wealth (billion Php) Proposed wealth tax rate Projected wealth tax yield (billion Php)
500k – 5m 15% 9,910,080 2.75 27,252.72 0% 0
5m – 50m 2% 1,339,200 27.5 36,828.00 0% 0
50m – 250m 0.11% 70,140 150 10,521.00 0.15625% 16.44
250m – 500m 0.01% 6,363 375 2,386.13 0.3125% 7.46
500m – 2.5b 0.01% 3,872 1,500 5,808.00 0.625% 36.30
500m – 2.5b 0.01% 3,872 1,500 5,808.00 0.625% 36.30
2.5b – 5b 0% 345 3,750 1,293.75 1.25% 16.17
5b – 25b 0% 217 15,000 3,255.00 2.5% 81.38
25b+ 0% 34 212,500 7,225.00 5% 361.25
Total 518.99


If we decide to impose a wealth tax on those with wealth worth P500,000 to P50 million brackets going by our wealth tax rate schedule (where is the rate schedule?), then the total wealth tax yield will be ₱558.41 billion, which is almost equal to the yield under a flat rate of 3%.9

A 3% tax rate is fair, if not a bit low.

James Miraflor is a fellow at LEARN.

1See www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/global-wealth-report-2021-en.pdf
2See www.bsp.gov.ph/statistics/OtherRealSectorAccounts/Table%2043.pdf.
3See www.bsp.gov.ph/Statistics/Financial%20System%20Accounts/Table%2018.pdf.
4We multiply the poverty gap with the poverty threshold and the number of individuals to get this amount. See the data here.
5See the latest release of the Consolidated Accounts here .
6This is also from the Consolidated Accounts. 2018 is the latest year when the data on net operating is available. The latest release only includes data on gross operating surplus.
7Divide GFCF by the net operating surplus then deduct 100%.
8Even if the Credit Suisse Global Data Book reports total wealth and not just financial wealth, it is reasonable to assume that the bulk of the wealth is in financial form, especially at the richest segments.
9Note that 3% is close to the rate proposed by Sen. Elizabeth Warren and Sen. Bernie Sanders for a US wealth tax proposal.