Tax the Rich: Can It Make Any Dent on a Long Slide in the Economy?

There is a growing public debate on a wealth tax. Several market analysts reported that billionaires added more than $4 trillion to their wealth during the unprecedented pandemic. If you look at the other side of the coin, during the same period, the crash in the international tourism industry among the most hit industries during the pandemic caused a loss of $4 trillion. 

The US Congress authorized $4 trillion in the Covid relief packages. However, the U.S. federal government ran a deficit of more than $3.1 trillion in the fiscal year of 2020, triple the deficit for 2019. It accounts for 15% of GDP and the highest level since World War II. Globally, $16 trillion worth of fiscal measures to pay for the pandemic would come due around the globe as public debt surges. 

But who is going to pay for pandemic-related government losses? Unfortunately, taxpayers shall bear the costs of Covid for decades. It is a hard lesson that we have learned from the pandemic although it would take for a while until we realize the real fiscal impact. We all hope that we will soon see this pandemic end. However, the burden of debt is no longer bearable if the pandemic becomes the norm. 

The richest 1% owns close to half of all global wealth for now and it is on track to two-thirds by 2030. The wealthy individuals often find a way to reduce how much taxes they pay and most of them do it legally by leveraging many laws and tax loopholes. As long as they adhere to the law, there shall be no issue. But it may not look like a fair game when you see that some billionaires pay almost no taxes. Now the rich has become the target. 

The concept of wealth tax is nothing new, but has quickly re-emerged after the pandemic began and gave lots of pressure on sound fiscal management due to public health measures. After two World Wars, an one-off wealth tax was levied in many European countries and also in Japan to fund recovery. Few countries have recently enacted the new law and started charging a wealth tax, which could feel utterly progressive to some taxpayers. Argentina passed a tax on the wealthy to pay for medical supplies and relief measures amid the ongoing pandemic. 

In the public domain, UN Secretary General António Guterres has urged a tax on the rich who profited during the pandemic. The IMF has also joined the band of nations to support a wealth tax to help cover the cost of pandemic. Many governments also consider levying a higher tax for what people earn and also what they own as a potential venue to increase revenue and fund their relief packages. In contrast, Nobel Prize laureate, Angus Deaton, has warned once a wealth tax is introduced to pay off pandemic debts, it would likely stay in and become permanent. 

The government will be in trouble again if the economy is in a downward spiral due to the mounting costs of another pandemic and its aftermath. A well-designed tax could raise significant uplift in revenue in a fair and optimal way without administrative headache. Many believe that an one-off wealth tax could encourage people who have ability to pay their dues, while not discouraging people who should work and mostly live on their little salaries as their primary source of income. 

For general public sentiment during the pandemic, an one-off wealth tax seems to be the most plausible route for any tax rise. Though, the majority of taxpayers who would be liable for this type of tax rise would be people in their 50s and 60s who still have to work to pay their bills. 

A wealth tax is similar to a real estate property tax. But not like a property tax, a wealth tax covers all wealth an individual owns. Therefore, it is often criticized as the more you have, the higher tax you have to pay, whether it is a simple one time tax or it becomes a broad and permanent tax scheme with lower exemptions and higher tax rates. 

Reforming existing taxes on capital and financial assets will be continuously considered to raise revenue for the governments around the globe. Revenue from a wealth tax, for example, made up 3.79% of total tax revenue in Switzerland in 2019. However, it still comes at a cost. This revenue increase does not necessarily imply that a wealth tax is the best way to achieve possible policy aims, either. An one-off wealth tax will be assessed on the open market value of the assets on a given date and it could create a lot of fireback.

Administering a wealth tax is inefficient because private wealth is inherently more difficult to measure. Wealth tax is tricky to administer for privately-held assets that are not liquidable. It is hard to quantify true market value if there is no existence of publicly listed comparable. Many startup entrepreneurs, for example, own companies that are not publicly traded yet, especially in their critical early growth phases. A significant tax obligation may stick to them with a potentially large sum of tax liability based on a notional estimate of their company’s value, which is, in definition, illiquid or not equivalent to cash yet. 

Therefore, if there is no way startup entrepreneurs could cover their wealth tax obligation of privately-held companies, in the worst case, wealth tax could force the owners of private companies to sell their businesses earlier than they normally would do in order to pay the taxes they owe.  

A wealth tax will distort economic behavior in a way that is harmful to overall economic growth and the nation’s prosperity. For example, by taking a fraction of people’s wealth each year, this tax could reduce the return to investing and discourage saving. This can seriously affect economic growth because investing activities and capital accumulation, which are critical for entrepreneurship and innovation, are now exposed to a higher tax risk. To the extent that entrepreneurial talent is important to success for both individuals and the nation, a wealth tax can damage innovation and further job creation.

Benjamin Franklin once said that in this world nothing can be said to be certain, except death and taxes. In most OECD countries, tax issues have been predominantly and will be continuously on public political agendas for several decades. The Covid-19 pandemic and its economic aftershocks shine a light on economic inequalities and hit hardest the people in poverty. 

Our current way of taxing the wealthy is yet far too complicated which could lead to resentment and tactical avoidance. We need a better way. We should be committed to a fair and efficient tax scheme. The wealthy could pay their fair share by reforming the dividend tax, pensions or other business disposals, for example, to make the tax system fairer and more sustainable.

Policymakers should stick to the tax system that is fair and optimal. Other policies could encourage the wealthy to voluntarily contribute to society, but not force them. An income tax surcharge on high-income households could be quickly implemented but won’t be enough anyways, 

Many nations would need more tax revenues and special interests can easily get government favors in these emergency situations. But none of these would justify a wealth tax, which could damage entrepreneurship and innovation, the engine of economic growth. A wealth tax would both fail to accomplish the goal of effectively raising new revenue and also deliver a devastating blow to domestic growth and prosperity of the nation in the long-run.

My Data is Mine

If you are not paying, you are the product. That is how social media companies make money by selling your behavior and preference data. To run a successful commercial campaign, you should start collecting first-hand data to build your audiences first. Digital marketing is getting more sophisticated and also very expensive. Digital marketing proves to be a good investment especially for those companies to survive Covid-19. But, you won’t be able to get amazing results with the same amount of budget like you used to if you don’t know how to adapt.

We generally believe that we own our personal data. That is a common consensus. Though, do we really own our data? Do we really know what it is worth? After we have all migrated to the smartphone era, data has been collected about all of us at every moment. Some of the data is on your mobile, tablet or laptop. Some of it is held by your favorite social media services, shopping platforms, free emailers, or search engines. All your data and digital footprints are interconnected across the channel and platform through your web browsers, Google Android or Apple devices in your arm’s length.  

Some of you may say “who cares?” Now, you should care about your data. Not because your data privacy is at risk, but your data can make money for you. There are several startup companies that will give you money to relay your data to advertisers. They allow individuals to get compensated for sharing anonymous and aggregated insights from their data. That is epic. If Facebook, Google, and Youtube can generate tons of money in online advertising with your data, then why not you? 

Some may argue that this scheme may sound like highly controversial “universal basic income”, but more precisely it is “universal basic data income.” Universal basic income would be prohibitively expensive and encourage people to leave their jobs. Dana Budzyn, a co-founder and CEO of UBDI (an abbreviation of universal basic data income), launched the first ethically-sourced data monetization program for individuals in the $50 billion market research industry in 2019 to transform data economy culture. Probably, she didn’t mean to go that far to give a solution to the job losses, economic or racial injustices that would be triggered by further automation and AI like many other prominent names in technology are pushing either universal basic income or guaranteed income as their favored cause.

The MyData project in Korea, primarily led by the Financial Services Commission (FSC) will create a new business opportunity by allowing collecting and analyzing personal data across the financial services. The Financial Services Commission ambitiously pushes it forward with the target launching date by the end of this year. The authority acknowledges that digital commerce platforms are not quite ready yet to jump on the wagon. However, if it expands to healthcare, transportation, digital commerce, social media, and advertisement, the impact will be huge. 

The law to assist consumers in exercising their data rights by obtaining opt-in consent before processing their sensitive data are essential prerequisites to make the MyData project successful. The amendments in three major data bills including the Personal Information Protection Act (PIPA), Network Act, and Credit Information Act in early 2020 paved the road for the MyData project. It will create a new business opportunity for those 28 companies that were granted with the license to get on the MyData project. 

Data privacy regulations will ban excessive marketing among participating entities, though, to keep their sanity. In addition, the officials have granted the licenses to only the large and established firms meeting their regulatory requirements. There are also few leading fintech firms participating such as Toss (Viva Republica), which is promising. More companies express their interest in the MyData project and we hope to see more creative ventures in the coming years. A more progressive approach to reduce regulatory barriers would be strongly recommended to accelerate the data economy.

China passed a major new data privacy law called PIPL (Personal Information Protection Law) in August, 2021, which is often compared to Europe’s GDPR (General Data Protection Regulation). The new law will give only 2-3 months to get prepared for the corporations and the full text continues to evolve. All leading data privacy acts around the globe have some resemblance. It is like a double-edged sword. It provides greater protection as well as rights to individuals. This much needed law and regulation would alter how businesses handle the information. Even if it is burdening for the corporations and any organizations to comply with new rules, there can be a real opportunity. 

Data can be a strategic asset. It can be an opportunity to propel business in utilizing, managing data and realizing strategic and commercial values out of data. The future of data ownership belongs to you. There will be more companies that help you discover where your personal data is and manage your digital footprints. You are in the driver’s seat deciding where your data should or shouldn’t be used by letting only companies that you trust can use your data, monetize it, and give a fair share back to you. 

Data is the new oil is the clear statement coined by Clive Humby, a British mathematician and entrepreneur. Data economy will be defined by the global data ecosystem and governance efforts on how companies monetize and evolve crucial data assets. Whether it is radical transformation or day-dreaming, more young innovators would come and make it happen with their entrepreneurial push. The government should set the boundary, not act as a bottleneck. One thing that does not change is that my data was, is, and will be mine. 

METAVERSE WILL BOOST THE CREATOR ECONOMY IN A BIG WAY

One unexpected by-product of ‘work from home’ is a rising stock market and growing demand for freelance jobs. Not that I’m saying that it is right or wrong, but Covid-induced economic uncertainty makes people wander around. Even high-income earners who already make comfortable living sometimes have surprising part-time jobs from their spare time, saved from counterproductive long commutes, business trips and meeting schedules. Ironically, work from home means retaining more energy and people can do more work or even multitask with less distraction.

One of the big aspirations behind the metaverse is to contribute to the creator economy in a big way. Metaverse is a metaphysical universe where users can create and be anything they want. Many tech giants already have skin in the game and support more creators to socialize in the metaverse and help them make a living in their platforms. More paid online experience, subscription service and virtual merch sales would be massively prevalent in the coming years. It is no surprise to have 10,000+ creators who make serious money in the Roblox economy. There is a girl in her mid-20s who has sold over 1.3M+ virtual merch in Zepeto. Not to mention YouTube or TikTok madness, the creator economy is a global affair.

It is the year that we prioritize diversity, equity, and inclusion (DE&I). Many corporations and institutions rush into building inclusive and equitable cultures that honor all walks of life. DE&I need cross-organizational support from every level of organization. DE&I culture won’t build itself, though. Culture is like the glue that holds the organization together during the good and bad times. However, creating organizational culture during Covid-19 outbreak is not an easy task because human interaction has been significantly reduced. People get hired without meeting face-to-face and fired over Zoom.

There is no high table on Zoom. So, all delegates and attendees participate in a call together as equals. Remote work has leveled the playing field in many positive ways. Video conferences on Zoom have erased the boundaries. We get to see more junior associates in video meetings that they would have been excluded otherwise. When senior leadership is attending a meeting from his/her kitchen while pets are running around in the background, it helps employees make a stronger bond to their boss as a human being.

No one is perfect. Though, there are people who care and want to look better on Zoom. To them, lighting is critical. There is a chroma key background people can easily set up in Zoom. It is like a bit of real estate voyeurism as the natural background says a lot about who he/she is. People often dress up head-to-waist, not head-to-toe, in bright colors with business on top and pajamas on bottom. People try to find the nicest background or pick virtual wallpaper to look professional. It is natural for people to show their face on Zoom and boost their online presence for more human interaction. But sometimes it is too much. There is no place to hide when video is mandatory in Zoom.

However, the metaverse gives you freedom. You can be anything you want to be and create texture, background and ambiance as you wish. Plus, metaverse will represent a huge opportunity to amplify diversity and inclusion of varying voices. Seriously, who cares who you are and what you do when you come out in your own avatar inside a virtual world?

Metaverse platforms can attract diverse audiences irrespective of gender, age, race, or sexual orientation. Metaverse brings people together to create social connection and helps them better understand about each other without prejudice on the surface. One clear thing we’ve witnessed during the pandemic is that the metaverse could eliminate geographic and social bias. When people are looking around in the metaverse, everyone looks alike and there are no strings attached. There are also no limits for creative self-expression in the metaverse. They can be also compensated for their creative endeavor, not to mention NFTs (non-fungible tokens.)

We will see a major transformation in the world of work. Metaverse is supposed to be a playground, but it can be a productive workspace. Facebook has pledged to become a metaverse company in the recent announcement and accumulated AR/VR assets to build virtual platforms over years. Microsoft is also doing the same, but it intends to focus on the enterprise metaverse, rather than a social venue. We’re all talking about the metaverse with our own deep social affinity. Many commentators say that Facebook would also ultimately bring people together for work and Microsoft for fun.  

Good news is that metaverse would pave the road for labor equality by tearing down borders, limitations, and norms between different worlds. In the real world, thanks to digital transformation, people can already choose to live outside cities but can still actively participate in the high value creator economy through digital labor no matter where they are and how they work. Online game industry is already sitting on a huge avatar economy, which I believe, a predecessor of the metaverse economy, where virtual goods are widely sold and traded in the secondary market. More consumers would shift their spending to virtual goods, services, and experiences in the coming years.

Technology, trade, and financial globalization has caused income inequality in the real world. There is already labor imbalance in the metaverse, too. For example, mining minerals in online games like StarCraft is nothing too new. People in low-income countries spend days and nights collecting digital items for sales inside or outside the game, so to speak. However, the value of digital labor will grow as the metaverse expands and it would create unparalleled opportunities.  

Everyone can be treated fairly in the metaverse, and everyone seems to be on the same starting point. No one regulates the metaverse yet, but it will be architected and highly calibrated by the higher power to meet the ever-changing needs in the market. Can the metaverse create a different world by any chance? Will existing tech giants lead and dominate the metaverse or will another underdog hero emerge soon? We will see.

Introducing My Next Legal Counsel: Artificial Intelligence Lawbots

As Artificial Intelligence (AI) is deeply integrated into our day to day life, many jobs doing simple and repeated tasks will quickly disappear. Advanced jobs that require professional knowledge or experiences would be also replaced by the adaptive deep learning machine and only the top human elites would survive. 

Artificial intelligence would eventually replace lawyers. It is yet hard to imagine how lawyers would be replaced by AI. Lawyers or judges are only as good as the information they receive. AI has the great potential to significantly increase the quality of information they receive and analyze without humane prejudice or personal favoritism. 

AI can take a lot of repetitive tasks and quickly finish them with consistent quality and reasonable judgement. There won’t be any errors with human intervention. Error rate increases when human lawyers get tired or have their personal agenda, but a machine won’t. All administration work in the public offices, therefore, will benefit from AI. 

AI would accelerate the processes of classifying documents and extracting any necessary data from those documents. In the areas of legal practice, AI can easily bolster tax practice first in order to get the best out of both AI and law worlds. 

For example, Blue J is a Toronto-based law tech startup developing an AI-powered legal prediction engine with a specific focus on tax and labor & employment law. Its proprietary technology can predict case outcomes with 90%+ accuracy. 

In the near future, government agencies will also increasingly rely on digital automation powered by AI. Regulatory compliance would also witness AI impact that has started kicking in with automation but it is not in full measure yet.

AI is a fast-evolving strategic technology with tremendous opportunities, but no specific legal framework to regulate AI exists yet. EUI organized a special summer research colloquium on AI and law in the past week. It was a great privilege to get associated with the European University Institute (EUI), a research institute established in 1972 in Fiesole, Italy, by the EU member states. 

The overall motivation of the EUI program was to stimulate the uptake of trustworthy AI in the legal domain. In theory, AI is supposed to be safe, lawful and also in line with fundamental human rights in the statutes. It was helpful to better understand a wide variety of logical methods that can be augmented to the legal analysis of all kinds using a systematic method to assess legal arguments. 

AI applications could pose specific and significant risks to the interpretation of various rules of law designed to protect fundamental human rights, ensure safety and attribute liability. Therefore, the development, deployment and use of AI should be subject to a range of laws and universal principles such as on data protection & privacy, consumer protection, product safety, liability and so forth. 

Some could argue that law is similar to coding as it is codified instructions determining dos and don’ts and ifs and thens. The rules of law are not as straightforward as computer programming, though, and AI can not define what justice is all about. 

AI can be more transformational than mere automation of manual processes that would eliminate many paralegal and legal research jobs in the future. AI will certainly accelerate the judicial processes and reduce the transactional costs. It will make lawyers and judges more focus on the core issues and a human side of lawyering and resolve conflicts faster. 

With $1 trillion turnover globally, the legal services market is one of the largest in the professional services worlds and the stakes are high. Large corporations already use AI-powered contract review and compliance administration. AI will help legal practitioners make more informed decisions but the final decision still belongs to a human domain. AI will help predict the outcomes of pending cases by letting the machine actively learn similar patterns of the relevant court proceedings. 

It can be daunting to lawyers as they go through years of rigorous education and qualification exams to reach a point where they can easily understand legalese. AI lawbots (or lawyer bots) can assist to upload legal documents and get simplified versions of the complicated legal documents in minutes. It is not yet 100% comprehensive, but AI lawbots can help lawyers in the legal discovery phase without wasting time. 

AI lawbots are smart at processing details, summarizing cases and looking up references. AI is not ready to make decisions yet on the cases even if it can help predict the outcome. AI lawbots mainly deal with drafting, contracting, reviewing and editing legal documents that will be immense with the onset of AI in law. AI lawbots will be a trusted companion to help lawyers reduce the manual effort required in any legal proceeding. It will free up precious time for the practitioners to take on more important tasks such as caring for their clients. 

Conventionally legal function has been viewed as an unavoidable cost center and largely overlooked by corporate clients. Though, the legal field has seen lots of innovations in recent years. It represents a significant opportunity for value creation. ROSS, IBM Watson’s AI lawyer or autom.io already support law firms and their clients. Opportunities available to lawyers that use AI are endless and can help lawyers equip themselves better before taking on a court case and offer a priceless human touch to their clients. Current practitioners need not worry about AI taking over their jobs. Considering the size of the legal market, AI will help unlock new value so it is the right time to invite an AI legal counsel to our next partner.

AI for Good

Despite the hype around Artificial Intelligence (AI), many early stage venture investors continue focusing on this. SoftBank is second to none. SoftBank reaped record ¥5 Trillion net profit for the year ended March 31, 2021. This was the highest of any Japanese company in history. SoftBank Vision Fund saw a huge investment gain on Coupang in the fourth quarter. This return creates a great momentum for the Vision Fund going forward. SoftBank founder, Masayoshi Son once said that “AI will completely change the way humans live within 30 years.” SoftBank has bulked up to $80 billion to fund Mr. Son’s AI vision.

China is on the frontier of AI. China makes huge investments in AI. China leads the way in AI-related patents and publications. Speech and image recognition applications are already widely used as China has a vibrant market for them. China is fast in adopting such products and services in day-to-day life. China is a huge market indeed. A large usage case in China provides advantages in big data and machine learning. Chinese government also has strong support for AI. AI is a field that is heavily backed by the Chinese government to maintain its competitive advantage. It gives a clear signal to private investors that AI is worth investing in. China already has 14 AI unicorns that are valued at $1 billion or more. China is a true leader of AI venture investment.

However, China’s AI superpower is deepening concern posed by cyber attacks, disinformation campaigns and privacy infringement. Former Google CEO Eric Schmidt and the National Security Commission on AI (NSCAI) recently published the report and warned that the U.S. is drastically underprepared for the age of AI and there are also serious military implications for that. Having said, China’s offshore investments in AI are attracting mounting scrutiny. As the report denoted, AI will be used in the pursuit of power. Therefore, China’s ambition to surpass the U.S. as the world number one AI leader within a decade is a real threat to all Americans and maybe to the world. 

Successful deployment of AI to strengthen governance is ironically only possible with China’s unique socio-political context. Strong state power has made the government exploit its exclusive data advantage and enhance state control over people through AI. AI-backed digital surveillance is a good example. Though, surveillance programs are probably only one aspect of the use of AI in China. Chinese government is counting on a booming AI industry. It makes this single party authoritarian regime using AI in pursuit of superpower legitimate. Chinese State Council’s New Generation AI Development Plan spells out China’s ambitious goal aiming to reach the AI industry worth more than 1,000 billion yuan by 2030. 

Certainly, there is a good use case of AI, too. AI has helped thousands of families in China to locate their lost children to be found thanks to very powerful and also efficient facial recognition technology that can process 100,000 cases in a second. Last year, China also mobilized its mass surveillance tools from drones to CCTV and also AI to monitor the spread of the coronavirus. AI will create so much wealth. AI will also create decent jobs for young and talented researchers and engineers.

Digital surveillance is now a part of life. The Internet is built upon the virtue of sharing. When you’re online, you have nothing to hide. Conflict between privacy and security is nothing new. However, it has become more complex and difficult with broad use of AI. What if there is somebody who knows you better than you know yourself. Therefore, what we should be more concerned about is our vulnerable privacy, that is continuously analyzed, updated and expanded for the purpose that we don’t recognize. Digital surveillance has been justified to fight COVID-19. Technology can play an important role during a pandemic indeed. However, it does not give authoritarian governments carte blanche for digital surveillance, nor a permanent measure for them to become a surveillance state. AI often tempts people in power to abandon moral responsibility. 

WhatsApp has recently filed a lawsuit in India against the government that requires social media companies to identify the first originator of information if the authorities demand it. The government could argue with the manipulation of information on social media or harmful misinformation during a public health crisis. Or perhaps, they can’t just stand the criticism of the government’s response to the crisis. WhatsApp has 2 billion active users worldwide and India has the most WhatsApp users counting 390 million. If anyone wants to trace chats that are encrypted end-to-end, it simply violates human right to privacy, not to mention the new privacy rules of WhatsApp. WhatsApp’s statement showed that tracing chats is like keeping a fingerprint of every single message over the Internet. Though, can anyone get this done without the power of AI? For WhatsApp and its parent company, Facebook, user data is the bread and butter. Funny enough Facebook and Apple are fighting over your privacy as Apple gives users the ability to opt out of being followed around the internet with its recent iOS update.

AI is getting better and better. AI can do good. AI will help humanity, not harm it. Many leading tech companies have dedicated resources to build AI for good and support developers who do the same. AI could generate a lot of disinformation and make a broader reach to audience with fake news. Garbage in, garbage out? Algorithms are only as good as the input. 2.5 quintillion bytes is how much data people create every day on the planet. There are 18 zeros in a quintillion. The amount of content and data generated daily is too much for humans to effectively monitor, digest and absorb. AI offers a solution for that. AI should be used to battle negative consequences. Therefore, some argued that all value produced by AI has to be a public property. We all know that it is wishful thinking, though, as people with higher power already know what AI tastes like. As a rule of thumb, there is no implicit good or bad to AI. At the end of day, AI is just a tool. Who drives it really matters.