Gabriel Zucman: ‘It is not up to the rich to decide how much they should pay in taxes’

The economist and expert on inequality believes that wealth taxation will be at the center of the political debate in the coming years

Gabriel Zucman
Gabriel Zucman, at the IE University building in Madrid, Spain, on Monday.Álvaro García
Laura Delle Femmine

Gabriel Zucman, 37, is as didactic as he is direct. “The way we tax the rich and multinationals is not sustainable,” he says. A disciple of Thomas Piketty, winner of the prize for the best young economist in France, professor at Berkeley and the Paris School of Economics, his research focuses on the accumulation, distribution and taxation of global wealth. He has become a standard-bearer for the progressive left. “The minimum tax on multinationals will lead to some improvement in collection and address some egregious abuses, but it is totally insufficient,” the Parisian economist says during an interview at IE University in Madrid. He traveled to Spain to present the latest report on global tax evasion by the EU Tax Observatory, of which he is the director.

Question. There are millionaires asking to pay more taxes. Is society changing?

Answer. That shows that more and more people realize that the way we tax the rich [and] multinational corporations is not sustainable. They have benefited the most from globalization, from the economic growth of recent decades. And yet they pay less and less in taxes. On the other hand, while I welcome this movement, I believe that it is not up to the rich to decide how much they should pay in taxes. I believe it is up to all people to decide, through democratic deliberation and voting.

Q. What about governments? Almost all countries have eliminated the wealth tax.

A. There are two ways of looking at it. One is to say that if most countries have eliminated wealth taxes, it’s because they don’t work. And it is true that in the past they had all kinds of problems: evasion, tax competition, avoidance... The other way is to try to understand what didn’t work and how to fix it. We’ve tolerated tax evasion for a long time. But the situation is different now; there is an automatic exchange of banking information. Tax evasion, tax avoidance, tax competition are not laws of nature. They are political decisions, and different decisions can be made.

Q. The EU Fiscal Observatory’s latest report proposes a global wealth tax.

A. We must understand the problem first. When you are very rich, it is very easy to avoid the income tax. We saw this with ProPublica’s revelations about taxes paid by Jeff Bezos, Elon Musk... It’s easy for the super-rich to structure their wealth so that it doesn’t generate much taxable income. That’s why the income tax fails. It is probably one of the biggest problems in our tax system, and it needs to be addressed. In fact, that is the main recommendation of our report, a minimum tax on the wealthy. The question is: a minimum expressed as a fraction of what? Since the notion of income for the very rich is not very well defined, it should not be expressed as a function of income but of wealth.

Our proposal is to have a minimum tax equal to 2% of the wealth of billionaires each year. This is in line with what has been done in taxing multinational corporations. There is an international agreement on a minimum15% global tax that has been applied in the EU since January 1 this year. The next step is to do the same for the very wealthy.

Q. And who should design it?

A. These taxes are best designed in a coordinated manner, but that does not mean that international agreements are always necessary. A country or group of countries can move forward unilaterally. Secondly, over the last two decades, the OECD has led the way in the field of international taxation, and it has done important [work]. But it has a major limitation, which is that it is not a global organization. It only represents 38 high-income countries. It is important to have truly inclusive negotiating frameworks that consider everyone’s interests, including the billions of people in the Global South. So, in the future it would probably be better to have a combination of international organizations.

Q. The U.N. is already working on a global tax framework. Does that jeopardize the progress of the OECD?

A. No, I think it complements their work and is a step in the right direction. It is not good to have a monopoly.

Q. The divide between the North and South became clear in the last vote.

A. I think it was a mistake for the OECD countries to vote no or abstain. They should recognize that it is no longer possible to regulate globalization and taxation only from a very narrow, Western-centric point of view.

Q. Should the G20 address wealth taxation?

A. It should, and I believe it will, because several countries have the political will [to do so]. I will mention two. One is the United States. Three or four years ago, when he was campaigning in the Democratic primaries, Biden was very much against taxing the rich. I think he will now make that the cornerstone of his re-election campaign. Then there is Brazil: it has the presidency of the G20 this year and knows that we are coming to the end of a cycle as far as international taxation is concerned. A new one has to begin, and they want it to focus on taxing the rich. In the coming years, these issues will be at the center of the international political debate.

Gabriel Zucman
Zucman during the interview on Monday in Madrid. Álvaro García

Q. So the challenge is to design it well.

A. The challenge is to learn from past mistakes. Governments tolerated tax evasion [and] tax competition. The wealth taxes that existed were archaic, in the sense that people had to declare their wealth on their own. What we are proposing is that, first, billionaires should be taxed. Most of their wealth is shares in listed companies, and if not their value can be estimated by looking at how the market values similar companies that are listed on the stock exchange. The automatic exchange of banking information makes it more difficult to hide assets in tax havens. Governments know a lot about the wealth of the rich. Last, but perhaps most importantly, tax competition needs to be addressed. Some countries will try to attract the rich, who are free to move where they want. The taxes that tax havens choose not to collect should be collected by others [as] the tax collectors of last resort. This is an important idea, which already exists in the multinational tax agreement. We have to apply this logic to the rich.

Q. Don’t all these taxes run the risk of discouraging growth and slowing down the generation of wealth?

A. The key driver of economic growth has been and will continue to be access to high quality education and health for all, good public infrastructure. In addition, there is a significant need for revenues to address climate change. These investments will only be sustainable if the taxes that fund them are collected fairly. Of course, the way they are collected has impacted economic growth. It is also crucial in the dynamics of inequality. These are first order issues in terms of public policy. Collective action is impossible without taxes; there is no society. Choosing how those taxes are collected is probably the most important democratic issue we all face as citizens and voters.

Q. The EU has started to apply the 15% minimum rate to multinationals. What are your expectations?

A. It is a step in the right direction and a milestone in regulating globalization. It will lead to some improvement in tax collection from multinationals and address some egregious abuses, but it is also totally insufficient. The 15% rate is too low and in practice companies could pay less. For example, if they have sufficient presence in a tax haven, the corresponding profits can be excluded from the minimum tax. This is perverse because it incentivizes moving real production to low-tax locations and will exacerbate international tax competition. What we show in the report is that, compared to an agreement without loopholes, the current agreement will generate only half the revenue that could be expected. The glass is either half full or half empty, depending on how you look at it, but that’s how it is. There is nothing to stop a country like Spain or a group of countries from saying, “15% is not enough for us, so it will be 20% or 25%,” making it more ambitious.

Q. And pillar 1 [taxing a portion of the world’s largest companies’ profits] is dead?

A. Yes, because it is only for a handful of companies, some 70-80, most of which are in the U.S. and China and do not want to apply the agreement. It doesn’t have any traction in the near future, but it’s not the end of the world. Improving the minimum rate will also address the problems that exist in the digital industries.

Q. Can international taxation be changed without the United States? That’s where the world’s largest companies and the world’s richest people are.

A. Absolutely.

Q. So in the future it will be possible to put an end to tax havens and tax evasion and tax avoidance?

A. There is this idea that one cannot have globalization without tax havens, but that view is wrong. There can always be countries that play the role of tax collectors of last resort. If Spain decides that it wants multinationals to pay at least 25%, it can calculate the tax deficit of each multinational that has access to its market, defined as the difference between what they are taxed globally and what they would have to pay if they were subject to a minimum tax of 25% in each country where they operate. Some will pay at least 25% everywhere and will not have an extra tax in Spain, but for those that do not [pay]? Spain could collect a portion of its fiscal deficit. For example, if Apple has a global fiscal deficit of 10 billion and does 10% of its global sales there, Spain could say, “If you want to continue to have access to our market, you must pay 10% of 10 billion, an additional €1 billion in taxes.” The logic is very simple: you have to link market access to minimum taxation.

Q. And there is no risk of it leaving Spain?

A. No. The tax depends on how much the company is taxed abroad and where the clients are located. Even Apple, with all its power, can move its profits, its offices, but fortunately it cannot move its clients.

Q. How much weight does ideology or the fear of losing votes have in governments’ fiscal policy decisions?

A. I don’t want to downplay the role of ideology and the many powerful economic players who have an interest in maintaining the status quo. But I don’t think that is the real crux of the problem. The main reason we have made so little progress is because most people are convinced that nothing can be done alone in a globalized world. That view is wrong. Most of the work of the EU Tax Observatory is to explain concretely and practically why this view is wrong, what unilateral measures can be implemented, to show that globalization and European economic integration can be reconciled with fair and progressive taxation.

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