Against this background, the income of the richest people also initially fell, but then their fortunes increased significantly, breaking records before the pandemic.
Obviously, this leads to growing inequality, with the poor losing out on pandemics and the fortunes of rich people breaking new records.
This is likely to result in public discontent and higher tax rates to shift the benefits of the pandemic from the richest people to the lowest-income people and compensate for the effects of the pandemic.
And obviously, rich people don’t want that, so they are already looking for ways to consolidate their increased wealth and avoid higher tax rates.
How wealthy people would act now?
No one wants to lose their money or share it with others. So far, the plans of rich people are quite varied. Some focus on philanthropy to show that they are willing to share their benefits with people and communities who have lost on the pandemic. Others are considering more radical options, such as creating trust funds and moving to lower-tax states and countries.
Rich people are going to create trust funds
According to Rob Weeber, CEO at Swiss wealth manager Tiedemann Constantia, the election of Joe Biden as president provoked increased demand to set up trusts, as that would allow them to manage their assets and pass along money under the current $11.7 million tax-free amount (during the election, Joe Biden offered to cut this amount to 2009 level of $3.5 million).
According to Alvina Lo, chief wealth strategist at Wilmington Trust in Q4 2020, the number of created and financed trust funds increased sharply.
Why did the rich get even richer during the pandemic?
It would seem that the pandemic has severely damaged not only society, but also international trade, so the rise in prosperity seems a bit odd.
However, it is all about the efforts to rebuild the economy and the money that is allocated for this purpose. So-called helicopter money often goes to the stock market, inflating the value of stocks. According to Forbes, billionaires got around 20% richer during 2020.
Philanthropy as an outcome
Since the pandemic began, the fortunes of American billionaires have grown by $1.3 trillion, setting a new record of $4.2 trillion, controlled by the richest 1%.
This is double the wealth controlled by half of the bottom-half of people in the US.
And it is triggering a backlash among the wealthiest people, increasing their share of spending on charity. Donations to the UBS Optimus Foundation, for example, rose 74% last year over 2019 to $168 million.
What is the way out of the vicious circle of inequality growth?
Many people and researchers see a way out by simply increasing taxes on wealth. However, I see this as insufficient. The problem is that such taxes do not work; on the contrary, they exacerbate inequality and simply force people with wealth to seek other tax havens.
We must pay attention not only to the size of the tax but also to how the money received is used to support the bottom half.