Taxing the Rich: A History of Fiscal Fairness in the United States and Europe - book review

Tem gente que acha que nos EUA os ricos não pagam impostos, que estes recaem só sobre os pobres e a classe média, e que a renda tem se concentrado nos altos estratos da população por causa dessas políticas regressivas (contra os pobres, e a favor dos ricos).
Nada mais distante da realidade.
Este estudo bem fundamentado sobre a questão fiscal e tributária nos EUA e na Europa restabelece a verdade.
Paulo Roberto de Almeida

Published by EH.Net (December 2016)

Kenneth Scheve and David Stasavage:
Taxing the Rich: A History of Fiscal Fairness in the United States and Europe.
Princeton: Princeton University Press, 2016.  xv + 266 pp. $30 (hardcover), ISBN: 978-0-691-16545-5.

Reviewed for EH.Net by Barry W. Poulson, Department of Economics, University of Colorado.

In this study Kenneth Scheve (Professor of Political Science at Stanford University) and David Stasavage (Professor of Politics at New York University) address an important question:  given evidence of increasing inequality in recent years, why is there not greater effort to tax the rich? To answer this question they survey the history of progressive taxation in twenty countries over the past two centuries, and the literature on taxation and the distribution of income and wealth.

Their evidence reveals an inverted-U curve for the average top marginal rates of income taxation in these countries in the twentieth century. Using evidence for the income share going to the top 0.01 percent of the income distribution, their evidence suggests an inverse relationship between the top rate of income taxation and the share of income received by the top income group.  They also find evidence of an inverted-U for average top rates of inheritance taxation in the twentieth century. Using evidence for the share of wealth owned by the top 1 percent of wealth holders, their evidence suggests an inverse relationship between the top rate of inheritance taxes and the share of wealth held by this wealthy group.

The authors maintain that higher tax rates on the rich were a form of compensatory taxation. Mass conscription during World War I and World War II imposed a heavy burden on citizens. The rich, as owners of most of the capital, captured extraordinary profits during these war years. Higher marginal tax rates on the rich compensated for this privileged position they enjoyed during the war, and the differential burdens imposed on citizens by mass conscription.

Their explanation for declining tax rates on the rich in the post-World War II period is the converse of this argument. Technological changes eliminated the requirement for massive conscription of citizens into the military. As countries relied on a voluntary army, this argument for compensatory taxation of the rich no longer held. Further, they find that other arguments for compensatory taxation of the rich based upon privilege or rent seeking are not persuasive. The authors conclude that current economic and political conditions are such that the compensatory compensation argument for taxing the rich is no longer valid.   The authors agree with Thomas Piketty that taxation of the rich and income inequality in the twentieth century were linked to war; but, they do not agree that this was a random process (Piketty 2014, Piketty and Saez 2007). They argue that taxation of the rich and trends in income inequality were driven by long-run trends involving international rivalries and technologies available for waging war.

My major concern with this study is that their analysis ignores fundamental issues in this debate, especially as it relates to tax and fiscal policy in the U.S. Their analysis is based on the ‘public interest theory’ of government; the assumption is that progressive taxation satisfies a norm of fairness or equality. The public choice literature provides an alternative explanation for the differential tax burdens imposed on the rich relative to the non-rich. If the preferences of elected officials differ from those of their constituents, self-interested politicians will attempt to minimize the political costs associated with raising a given budget or revenue, where political costs result from opposition to taxes by taxpayer interest groups. Politicians can minimize these costs by shifting the tax burden to citizen groups that are less sensitive or effective in influencing tax policy. The use of a specific tax or marginal tax rate will then depend upon this tax price defined in terms of political costs. Allan Meltzer and Scott Richard use this model to show why preferences of voters for taxes are ranked by income, and how extension of the franchise could lead to higher taxation and redistribution of income from rich to poor (Meltzer and Richard 1981). (Scheve and Stasavage refer to this literature in a footnote on page 220, but argue that there is no general theory supporting the argument.)

The public choice literature reveals a systematic bias toward increased spending and deficits. From this perspective, the challenge in democratic societies is to design fiscal rules and institutions to constrain the growth of government, and to allow the preferences of citizens to dominate those of their elected representatives. Progressive tax systems are analyzed within the context of these fiscal rules and institutions (Merrifield and Poulson 2016b).

After World War II, under the leadership of the U.S., industrialized countries successfully removed barriers to international trade and capital flows. This so called “Pax Americana” set the stage for rapid growth in international trade and the global economy. To compete in this new global economy countries significantly reduced tax burdens.

As Chris Edwards and Daniel Mitchell document, the tax reforms enacted in major competitors have left the U.S. behind (Edwards and Mitchell 2008). While the U.S. retains certain tax advantages, there are a growing number of disadvantages. Its top individual income tax rate is now about average compared to other OECD countries, although it kicks in at a higher income level than most countries, and thus penalizes fewer people. However, U.S. businesses are increasingly at a competitive disadvantage with respect to tax burdens when compared to businesses in other OECD countries. The U.S. now has the second highest corporate income tax rate, at 40 percent when calculating federal and state corporate income taxes. U.S. businesses face high business tax and compliance costs. American businesses face a tax penalty when they repatriate profits earned by their foreign subsidiaries. The U.S. has the eighth highest dividend tax rate, and the highest estate and inheritance tax rate among OECD countries. Finally, the U.S. has one of the highest tax rates in the world on corporate capital gains. Much of this tax burden on business is borne by workers in the form of lower wages and employment opportunities.

In contrast, the most successful OECD countries have enacted new fiscal rules to constrain the growth in government spending. John Merrifield and I document how new fiscal rules have enabled these countries to reduce taxes and borrowing. By the end of the twentieth century Switzerland and the Scandinavian countries imposed the lowest top income tax rates compared to other OECD countries; and these countries are successfully addressing unfunded liabilities in their entitlement programs (Merrifield and Poulson 2016a).

Fiscal rules in the U.S. have been relatively ineffective in constraining the growth in federal spending. For half a century rapid growth in federal spending has been accompanied by deficits and debt accumulation. With total debt now in excess of 20 trillion dollars, the U.S. is one of the most indebted countries in the OECD. The total debt burden as a share of GDP exceeds 100 percent, and is projected to grow even higher in coming decades under current law. Growing unfunded liabilities threaten the viability of federal entitlement programs. These flaws in tax and fiscal policy are causing a massive redistribution of income and wealth in the U.S (Merrifield and Poulson 2016b).

References:

Chris Edwards and Daniel Mitchell. 2008. Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It. Cato Institute, Washington D.C.

Allan H. Meltzer and Scott F. Richard. 1981. “A Rational Theory of the Size of Government,” Journal of Political Economy 81: 914-927.

John Merrifield and Barry Poulson. 2016a. “Swedish and Swiss Fiscal Rule Outcomes Contain Key Lessons for the United States,” The Independent Review 21: 251-74.

John Merrifield and Barry Poulson. 2016b. Can the Debt Growth be Stopped? Rules Based Policy Options for Addressing the Federal Fiscal Crisis. New York, Lexington Books.

Thomas Piketty. 2014. Capital in the Twenty-First Century. Cambridge: Harvard University Press.

Thomas Piketty and Emmanuel Saez. 2007. “How Progressive is the U.S. Federal Tax System? A Historical and International Perspective,” Journal of Economic Perspectives 21: 3-24.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (December 2016). All EH.Net reviews are archived at http://eh.net/book-reviews/

Ah, esses ricos fabulosos e suas residencias imaginarias...

Tudo para escapar do fisco: quem sabe morar num barco, permanentemente em alto mar?
Paulo Roberto de Almeida

Nouvel avis négatif sur la naturalisation belge de Bernard Arnaud

Le Monde.fr avec AFP | 02.03.2013

Le Parquet de Bruxelles a confirmé son avis négatif à la demande de naturalisation de Bernard Arnault car le domicile de l'homme d'affaires français dans une commune de la capitale belge n'est pas sa résidence principale, qui reste en France, ont annoncé ses représentants en Belgique.

"M. Arnault a toujours sa résidence principale à Paris et reste fiscalement domicilié en France. Il reste résident français", ont-ils insisté samedi 2 mars. "Il utilise sa résidence à Uccle (commune de Bruxelles) quand il vient à Bruxelles", ont-ils précisé.

M. Arnault s'est rendu en janvier au commissariat d'Uccle pour confirmer qu'il avait un domicile dans la commune, mais cette démarche n'a pas amené le parquet de Bruxelles à modifier son avis négatif, a indiqué sa porte-parole au quotidien la Libre Belgique. M. Arnault devait en effet prouver avoir habité pendant trois ans en Belgique.

"ATTACHES VÉRITABLES"
Véritable saga qui a défrayé la chronique en France et en Belgique depuis septembre, la demande de naturalisation du patron de l'empire du luxe LVMH sera examinée dans les prochaines semaines par la commission des naturalisations de la Chambre des députés.
Bernard Arnault a introduit une demande de naturalisation en Belgique pour des raisons juridiques liées à la fondation qu'il a créée en 2008 en Belgique, Protectinvest, pour que son groupe ne soit pas démantelé s'il venait à disparaitre avant que le plus jeune de ses enfants n'ait atteint l'age de 25 ans, expliquent ses représentants. Avoir la double nationalité lui donnera la certitude que sa fondation ne sera pas attaquable, ont-ils souligné.
Pour accorder la nationalité belge au milliardaire français, les députés belges doivent être convaincus que Bernard Arnault a des "attaches véritables" avec la Belgique. Pour prouver ces liens, Bernard Arnault et LVMH avancent qu'ils mènent "des activités économiques parfaitement réelles en Belgique", où sont installées de nombreuses sociétés du groupe.
"PLUS D'UN MILLIARD D'EUROS" EN DROIT DE SUCCESSIONS
Selon le quotidien français Libération, Bernard Arnault y a même transféré depuis plus d'un an "la quasi-totalité" de sa participation dans le numéro un mondial du luxe via un montage juridique complexe. C'est sur ce point que le dossier de la 4e fortune mondiale, selon le magazine Forbes, pourrait s'avérer le plus fragile. Une information judiciaire a, en effet, été ouverte par le parquet de Bruxelles pour examiner la structure de ces sociétés.
L'avis des députés membres de la commission des naturalisations sera rendu en toute indépendance. Son président, l'élu centriste George Dallemagne, a toutefois souligné que si cette demande était approuvée, elle pourrait rapporter "plus d'un milliard d'euros" en droit de successions à la région de Bruxelles-Capitale.

Ah, esses ricos traidores, e suas casas maravilhosas (e vazias...)

Paris perd ses riches

M le magazine du Monde | 09.02.2013 à 08h16 • Par Maud Noyo

Bien sûr, les façades des résidences en pierre de taille du 16^e arrondissement parisien et les balcons des immeubles de Neuilly ne se sont pas hérissés d'une forêt de panonceaux "à vendre". Pourtant, les agences immobilières spécialisées dans le logis de prestige se font du mauvais sang. Voilà plusieurs mois que les biens à céder grossissent leurs catalogues.

Dans ce tout petit marché, on a désormais l'embarras du choix pour un hôtel particulier, une vue dégagée sur le bois de Boulogne ou une maison ultra-chic avec jardin en plein Paris. Les vendeurs ne sont pas toujours faciles à joindre. Ils sont partis, direction Londres, Bruxelles, la Suisse ou les Etats-Unis.
Charles-Marie Jottras, président de l'agence Daniel Féau, en quête d'un acquéreur pour la maison de la rue du Cherche-Midi du plus médiatique des exilés, Gérard Depardieu, est formel. "Le stock de produits de luxe a fortement augmenté ces derniers mois et, pour une proportion importante, à cause de gens qui partent à l'étranger", dit-il. Richard Tzipine, directeur général de Barnes, agence spécialisée dans l'immobilier "de prestige", évalue à un tiers la part des mises en vente imputables à un exil fiscal. "Des biens haut de gamme", décrit-il.
Tel cet appartement au parquet clair de 350 m², dans le 16^e arrondissement. Quatre chambres, bibliothèque et double séjour. Un bijou évalué à 5,2 millions d'euros. A Neuilly, un autre propose, pour le même prix mais pour 150 m² de moins, une gigantesque terrasse de 100 m². Dans les deux cas, les propriétaires ont fait leurs valises. L'un d'eux s'est déjà offert une maison à 10 millions d'euros en Suisse. La remise en cause de la taxation à 75 % des plus hauts revenus par le Conseil constitutionnel n'y a pas changé grand-chose ; le climat fiscal sous le gouvernement Ayrault inquiète les grosses fortunes, soupirent les agences. Et le marché du logement très chic patine.
Les transactions au-delà de 2 millions d'euros ont chuté en un an de 42 %, à Paris et en région parisienne. Dans cette catégorie, les prix dévissent avec une baisse de 10 à 15 %, selon une étude de l'agence Barnes.
FIN D'UNE CERTAINE OMERTA
Le marché du très haut de gamme parisien a beau ne représenter que quelques milliers de chaumières, sa déprime est un indicateur qui est pris très au sérieux. Elle apporte de l'eau au moulin de ceux qui, en attendant les chiffres 2012, prédisent que l'exil sous l'ère Hollande battra des sommets.
"Il y a aujourd'hui beaucoup plus de gens qui s'interrogent et davantage encore qui mettent en oeuvre leur délocalisation", affirme Stéphane Jacquin, directeur de l'ingénierie patrimoniale chez Lazard Frères ,Gestion. "Je ne serais pas surpris qu'en 2012, il y ait eu trois fois plus de départs de contribuables que les années précédentes, voire davantage", professe-t-il.
Cet apparent exode sonne aussi la fin d'une certaine omerta dans le milieu feutré de l'immobilier doré. "Est-ce qu'il y en a beaucoup plus qui sont partis en 2012 ? En tout cas, les gens en parlent davantage qu'avant", témoigne Richard Tzipine. Peut-être parce que les aspirants au départ ont changé. "Depuis vingt ans, les grandes fortunes rentières partent à cause de l'ISF, raconte Charles-Marie Jottras. Aujourd'hui, on voit s'en aller des dirigeants, des actifs beaucoup plus jeunes. Ils savent qu'ils vont gagner de l'argent mais ne veulent pas le faire en France."
Leur profil ressemble fort à ceux des "pigeons", ces entrepreneurs qui ont fait plier le gouvernement sur la taxation des plus-values lors de la vente d'une entreprise. Les agences vont devoir se retrousser les manches pour repeupler tous ces luxueux pigeonniers. D'autant qu'il ne faut guère compter sur l'arrivée dans la capitale de David Beckham pour sortir le marché de son marasme. Le footballeur, qui n'a signé que pour cinq mois au PSG, a prévu de laisser sa nombreuse famille à Londres.

Maud Noyon

Ricos e Arrogantes - Nuevo Herald

Com esse título, "Ricos e Arrogantes", foi publicada, anos atrás, uma entrevista minha nas Páginas Amarelas da revista Veja (neste link), o que me fez um pouquinho mais famoso, mas também despertou ciumes (de homens; colegas, quero dizer) e suscitou uma punição funcional tão injusta quanto ilegal, mas que guardo com certo orgulho intelectual (e algumas conclusões quanto às vaidades).
Eu me referia, obviamente, aos países desenvolvidos, incapazes de desmantelar seu arsenal protecionista contra a produção agrícola dos mais pibres (não necessariamente o Brasil, que não depende disso, mas certamente de países pobres, entre eles os africanos).
Os ricos e arrogantes desta vez são nossos velhos conhecidos: os milionários da América Latina, imensamente ricos e gananciosos, praticantes modestíssimos da benemerência e da filantropia.
Leiam na matéria abaixo...
Paulo Roberto de Almeida

Los ricos latinoamericanos
Andrés Oppenheimer
El Nuevo Herald (Miami), domingo, 06.27.2010

Un nuevo estudio según el cual los ricos de Latinoamérica se han hecho aún mas ricos a pesar de la crisis económica seguramente enfurecerá a varios líderes populistas. Pero lo que debería ser más preocupante del informe es que los ricos de la región planean donar menos para caridad que sus contrapartes de otros lugares del mundo.
Según el Informe sobre la Riqueza Mundial 2010, publicado por Capgemini y Merril Lynch, la suma de las fortunas de los ricos latinoamericanos --definidos como quienes tienen más de 1 millón de dólares en inversiones financieras, excluyendo sus casas y colecciones de arte-- creció en un 15 or ciento el año pasado, apenas por debajo del promedio mundial del 19 por ciento.
Sin embargo, si medimos las fortunas de los ricos latinoamericanos desde principios de la crisis económica mundial del 2007, sus inversiones financieras crecieron un 8 por ciento, más que en cualquier otra región del mundo.
Según me dijeron los autores del informe, eso ocurrió porque mientras los ricos estadounidenses y europeos perdieron mucho con el derrumbe de las bolsas de valores en el 2008, los latinoamericanos se beneficiaron por tener inversiones más seguras, y porque sus ingresos subieron gracias a las monedas fuertes de sus países.
"Los individuos latinoamericanos de alto nivel adquisitivo tuvieron un buen índice de crecimiento", me dijo Ileana Van der Linde, de Capgemini, una de las autoras del informe. "En los últimos dos años, sus fortunas en general crecieron más rápidamente que las de cualquier otra región del mundo".
No resulta sorprendente que el magnate mexicano de las telecomunicaciones, Carlos Slim, se convirtiera este año en el billonario más rico del ranking de la revista Fortune.
En lo que hace al número de ricos en Latinoamérica, creció de 400,000 en el 2007 a 500,000 el año pasado, según el informe Capgemini-Merrill Lynch.
¿Esto debería provocarnos indignación? Probablemente no, porque además de beneficiarse de sus inversiones más seguras y de las monedas fuertes de sus países, los ricos de la región invirtieron más que antes en sus países. El informe dice que aumentaron sus inversiones domésticas en un 2 por ciento el año pasado, hasta alcanzar el 47 por ciento.
Lo que debería resultar más preocupante es que los ricos de la región son, en promedio, menos generosos que sus contrapartes de otras partes del mundo. Una versión anterior del mismo informe, en el 2007, decía que los ricos latinoamericanos destinaban tan sólo un 3 por cientos de sus fortunas a la caridad, mientras que los ricos de Estados Unidos y de Asia donaban un 12 por ciento de su dinero.
Este año, el estudio anual de Capgemini-Merrill Lynch --que se basa en información proporcionada por bancos y empresas financieras-- no les preguntó a los ricos cuál era el porcentaje de sus fortunas que destinaban a donaciones. En cambio, les preguntaron cuánto dinero pensaban donar a entidades filantrópicas en el 2010. Una vez más, las cifras correspondientes a Latinoamérica resultaron desalentadoras.
En el mundo, el 55 por ciento de los ricos de Asia, el 41 por ciento de los de Europa, el 37 por ciento de los de Estados Unidos, el 35 por ciento de los del Medio Oriente y el 33 por ciento de Latinoamérica dijeron que planeaban donar más dinero en el 2010. El promedio mundial de donaciones previstas fue del 41 por ciento, me dijo Van der Linde.
Es cierto que los ricos latinoamericanos donan menos que sus contrapartes del resto del mundo porque muchos de sus países no ofrecen incentivos impositivos para deducir las donaciones de sus impuestos, como ocurre en Estados Unidos. Además, muchos ricos latinoamericanos donan dinero de manera anónima, porque temen ser secuestrados.
Y también hay un factor cultural, según me dicen dirigentes de instituciones filantrópicas. Mientras en Estados Unidos hacer donaciones es un símbolo de estatus, no ocurre lo mismo en Latinoamérica, afirman.
Mi opinión: Lo importante no es que los ricos latinoamericanos se hayan hecho más ricos, porque en general tienden a crear más empleo y a contribuir más a reducir la pobreza que los líderes populistas que los atacan, y que ahuyentan las inversiones.
Y aumentar los impuestos de los ricos puede ser complicado en algunos países de gran economía subterránea, en que la base tributaria se reduce a unos pocos empresarios acaudalados.
Pero sí creo que los ricos de la región podrían ser más generosos. ¿Acaso alguno de ellos ha prometido donar por lo menos la mitad de su patrimonio en vida o después de su muerte, como ya lo hicieron los billonarios estadounidenses Bill Gates y Warren Buffett, y exhortaron a hacer a sus pares este mes?
Yo no sé de ninguno. Es hora de empezar a pensar en maneras de incentivar a los ricos de la región a donar más, y a convertir la filantropía en un símbolo de estatus entre ellos.

Eike Batista: o mais rico do Brasil - Forbes

Billionaires List
Big Man In Brazil
Keren Blankfeld
Forbes Magazine, March 29, 2010

Eike Batista has ridden up the commodities boom to become the richest guy in his country. He aims to keep going.

In Brazil, perhaps the only thing that's bigger than Eike Fuhrken Batista is Pão de Açúcar, the peak that dominates Guanabara Bay in Rio de Janeiro. "Sugarloaf" mountain stares across to his tenth-floor office in the Praia do Flamengo building. Six years ago Batista swore he'd become Brazil's richest man. Now he is: With a net worth of $27 billion, two-thirds of that gained over the last 12 months, he's on his way to arriving at his latest boastful goal, becoming the world's wealthiest guy. His Facebook page mentions how rich he is three times.

Batista, 53, has made a pile in resources and other services: mining (MMX), energy (MPX), logistics (LLX), real estate (REX), shipbuilding (OSX), tourism and entertainment. But two-thirds of his fortune comes from a relatively new source--OGX Petróleo e Gas Participações, the oil-and-gas exploration company he founded in July 2007 and took public a year later. "If you compare the 17,000-to-1 ratio of success for gold discoveries to the 2-to-1 ratio for [offshore] oil," says Batista, "you can see why I became so enthusiastic about creating OGX." What's with all the "X"s in his companies' names? They're meant to suggest the multiplication of wealth. He almost always lives up to the promise. Shrewdness, drive and well-placed risks figure in his extraordinary success. So do good timing and sheer luck.

After roughly 25 years in precious metals Batista decided to bet on oil. In November 2007, four months after he formed OGX, state-owned Petrobras announced the discovery of an oil bed in the Santos Basin Tupi area, off Brazil's southeastern coast. With a potential 8 billion barrels of oil equivalent, it was the largest discovery ever made in Brazil (at the time the country had 14 billion barrels of oil and gas reserves). Batista, who has long had connections within Brazil's government, had been in touch with Paulo Mendonça, a 34-year veteran of Petrobras who had just retired as its chief of exploration. A little inducement--big salary, an equity stake in OGX and stock options based on performance (what Batista gamely calls "a bonus with an onus")--persuaded Mendonça to set aside retirement and work for the new company, along with six experienced colleagues. "In the end, if you spend on know-how, the risk you're taking on is smaller," says Batista. Especially on know-how that's so well connected.

OGX was created just in time to become one of the first--and last--big players in an auction of exploration licenses by the Brazilian National Petroleum Agency. Only two weeks before the leases went up for bid, the Brazilian government decided to remove the most promising 41 blocks closest to the Tupi field that Petrobras had just discovered. The multinationals jockeying for those reserves were sidelined.

Meanwhile OGX offered $800 million for the exploration rights on 21 concession blocks in four different shallow-water basins, in some cases outbidding Petrobras. Batista pulled out $375 million from his own pocket; the rest came from 12 investors (including the Ontario Teachers' Pension Plan and New York City's Ziff brothers), some of whom had bet with him on earlier deals. After the bidding OGX held concessions covering roughly 1.7 million acres, making it the biggest private player in oil and gas. (Last year OGX acquired an additional 70% participating interest in 4.9 million acres from the nearby Pamaíba Basin.) The company then contracted for five semisubmersible rigs, with leases of two to three years plus renewal options, and hired a survey ship to collect seismic data. OGX also built a 3-d oilfield visualization center five floors below Batista's office. Since most blocks are in shallow water and relatively easy to access, production costs could be as low as $8 a barrel, compared with perhaps $35 for offshore Brazilian crude trapped under thick layers of salt.

In June 2008 OGX raised $4.1 billion in an initial offering, the largest in Brazil's history at the time. Batista himself invested another $450 million. He's a little touchy when asked about how much of this good fortune is strictly his own brilliant planning. "You cannot exist as a $20 billion company with speculation," he says. "Luck is Brazil being in this stable economic position today; luck is Brazil having these blocks available for bidding. But it's also a lot about discipline and hard work. There's also timing: When I did the IPO the price of oil was $140. That wasn't my doing. That was luck."

Some Brazilians who have followed Batista for years claim that he is locked in a classic Oedipal battle, perpetually trying to outshine his powerful father, Eliezer Batista da Silva. Dad protests. "Eike always gave signs of being a man who liked to get things accomplished," he says, "but I never imagined his success would be in this scale." Eliezer, now 85, presided over Brazil's behemoth mining company, Vale do Rio Doce, before it was privatized in 1997. During his presidency Vale, which had been primarily an iron ore exporter, expanded its operations globally and diversified into other metal markets and into pulp, forestry, shipping and railways. His reach in politics extended beyond leading the state-owned company: Minister of Mines & Energy off and on since 1962, Eliezer was named Secretary of Strategic Affairs in 1992 by President Fernando Collor. "I want to make it clear that I follow Eike's path more than he follows my path," says the elder Batista, who once advised Enron executive Rebecca Mark and today serves as a general business advisor to his son. "I've never been involved in oil."

Eike Batista bristles at the idea of any help from Dad. "All my businesses started from zero," he says. "My father was a problem for me because he never let me near Vale," he adds. "I wasn't allowed because he was afraid of a conflict of interest. I'm the one who made my own connections." Not to mention, laughs Batista, "my dad doesn't believe in taking risks."

Raised with his six siblings in Germany from age 12 to 23, mostly by his German mother, Batista studied metallurgy at the University of Aachen and claims he sold insurance door-to-door to help pay for school. In 1979 he returned to Brazil to try his hand at gold trading in the Amazon. His father thought he was crazy, but within 18 months Batista managed to bring in $6 million in commissions for himself. He used the loot to invest in a rudimentary operation of garimpeiros, men who lift gold ore from the jungle with pans and nets. But he underestimated the difficult logistics and the prevalence of diseases in the area. With only $300,000 left, he joked with friends that he should have taken the $6 million and hung out at the beach. But the workers eventually produced up to $1 million in gold per month. "Thank God, the mine was idiot-proof," quips Batista. "Only an extremely rich mine could have withstood all the mistakes I made. I was lucky."