In this post, we take a look at a few American billionaires, Jeff Bezos, Warren Buffet and Donald Trump, and see how they would fare under zakat and contrast it to the current tax regime.
Click here to see the initial post in this series.
Originally, I was going to focus on Buffet versus Trump. However, with the media ablaze about how Bezos took over from Bill Gates as the richest person on earth (albeit temporarily; see the caveat "Is Capitalist wealth real wealth" in my last post) I thought it would be useful to look at him as well. However, we don't have actual data for the income taxes the Amazon founder paid last - so I am going to estimate the taxes he paid based on the average rate the wealthiest Americans pay:
Income for 2016: $1,681,840
Estimated income tax rate: 21.5%
ESTIMATED taxes paid $361,596
In 2016, Warren Buffet released his 2015 tax numbers to trump Trump's argument about how much taxes he paid. They look as follows (all numbers are extracted from this CNN article "as is"):
Income for 2015: $11,600,000
Effective income tax rate: 16%
Total taxes paid $1,900,000
Trump has failed to release any of his returns. However, his 2005 tax return did get leaked and it revealed the taxes he paid for that year. In terms of income and taxes, his numbers are as follows (again " as is" from the article):
Income for 2005: $150,000,000
Effective income tax rate: 24%
Total taxes paid $36,300,000
BEZOs/Buffet would pay more!
For Bezos, I used the $90.6 Billion number:
Bezos Wealth High point: $90,600,000,000
Zakat rate 2.5%
Total zakat due $2,265,500,000
Consequently, Bezos would pay more than the $2.26 billion more than the $361K he's estimated to have paid.
Buffet would also end up paying more in terms of Zakat. Using Buffet's 2015 numbers:
Net worth in 2015: $66,700,000,000
Zakat rate 2.5%
Total zakat due $1,667,500,000
Trump, on the other hand, would pay in 2005:
Net worth in 2005: $788,000,000
Zakat rate 2.5%
Total zakat due $19,700,000
That's right. Trump would actually pay less under the Zakat approach to taxes.
But Bezos/Buffet would pay More than $3.9B more than the $2.26M they pay now!
Bezos/Buffet current tax bill is small fraction of what they would have to pay under the Zakat approach; only 0.06%. That would be like leaving 6 cents tip on a $100 restaurant bill - almost offensive as to how small it is. Trump, on the other hand, would pay $16.6 million less under the system of zakat.
Before I getting into the caveats, it's important to emphasize the concept of justice in Islam.
Regardless of what we think about Trump, or whoever, the rules are the rules. If the rules requires someone like him pays less zakat than someone like Bezos or Buffet to pay more, then that's the way it is. After all, isn't this the big problem in democracies? The powerful just change the rules based on their whims and desires; irrespective of who's life it destroys.
In Islam, the Khalifah, can't just change the rules to satisfy the people. When Umar (ra), the second Khaleefah, attempted to fix the mahr (dowry), a common woman corrected Umar pointing out his opinion contradicted the Quran. It doesn't matter if one thinks that making the mahr more affordable would be "beneficial", e.g. marriage would be more affordable, society less materialistic, etc - the Quran overrules such thinking.
In terms of caveats:
Kharaj: Trump vast empire of golf courses and real estate could face the land tax known as kharaj. It really depends whether the land is judged a agricultural or residential. There is no kharaj on residential land. If golf lands are deemed to be agricultural, then it would be taxed as such. According to the Atlantic, golf related revenues amounted to $200 million. Although this gives scale, the 'kharaj evaluators' would need to evaluate the crop yield to determine the amount kharaj.
Charity versus Zakat: Some may notice that Buffet paid around $2.8B in charity. That's not the point: the point is zakat is to be paid to the 8 categories we discussed in the last post (poor, debtors, stranded travelers, etc.). Jerry Kaplan, AI specialist, entrepreneur and author of Humans Need Not Apply, wrote:
"For instance, Jeff Bezos started Blue Origin, a company working to reduce the cost of spaceflight so private individuals (as opposed to governments) can explore the solar system. This is laudable, and it's certainly his right to do it, but might the resources devoted to this high-minded effort be better applied elsewhere, or perhaps be directed by more than a single individual's passions?
Steven A. Edwards, a policy analyst at the American Association for the Advancement of Science, remarked, "For better or worse, the practice of science in the 21st century is becoming shaped less by national priorities or by peer-review group and more by the particular preference of individuals with huge amounts of money."" [Emphasis Added; see here on pages 112-114 for the full context]
The point is who other than Creator can define what the priorities should be for the taxes that are collected?
That is, it is shouldn't be left to the whims and desires of people to determine how the wealth of the nation should be spent.
"But perhaps you hate a thing and it is good for you; and perhaps you love a thing and it is bad for you. And Allah Knows, while you know not." [TMQ 2:216]
The implication of this - that Allah Knows Best - is that the tax code can't be changed by special interest groups. Furthermore, since it comes from the Creator we know it is fair - since it isn't coming from someone with an agenda. This is a key issue, which will be explored in future posts in sha Allah.
What Percent of Wealth Would Solve Poverty?
Before closing, wanted to share a stat that I came across that could be useful in talking to people about wealth tax and how it can solve poverty.
According to Steve Phillips, author of the New York Times best-selling book, Brown is the New White: How the Demographic Revolution Has Created a New American Majority:
"I talk in my book about doing a wealth tax on the top 1 percent in the country, that the top 1 percent, people who have $13 million a year—who have $13 million in assets, collectively, have $25 trillion. And so, if we did a 2 percent wealth tax, that would generate enough money to end poverty within this country." [emphasis added]
This stat can be a useful way to spark a discussion not just about zakat, but Islamic economics.
Or you can use the previous blog title - Do You Pay More For Coffee Than The Rich Pay In Tax? - but either way it's a good way to engage people and show how Islam offers fresh solutions to alleviating poverty.