Next stop: a global tax on the super-rich?

Marlene Engelhorn is in her early 30s and is heiress to the billion-dollar fortune from the multinational BASF and, like a large group of mega-rich people from different backgrounds, she appeared at the Davos Forum in January calling on political leaders to pay more taxes to tackle inequality. The International Monetary Fund (IMF) suggested devising a temporary tax on the highest incomes to finance the burden of the pandemic. By the summer, Brazil, which holds the temporary presidency of the G20, hopes to finalize a joint declaration on a minimum tax on the most affluent individuals. Moreover, the U.S. economy, the world’s largest, where tax increases are not usually warmly welcomed, recently proposed a heavier taxation of the highest net worth Americans. Is this a coincidence or the beginning of a tax revolution to ensure that the world’s richest pay higher taxes?

Never before have so many different voices placed the spotlight on taxes on vast fortunes at the same time. They are hoping to make this one of the hot topics of the international debate in a climate of growing inequality when many countries need more resources to tackle major challenges: the immense debt accumulated due to the Covid-19 pandemic, the ecological transition, digitalization and aging populations.

“The super-rich should pay more taxes for many reasons. We have seen the five richest men in the world doubling their fortunes since 2020, while 5 billion poor people have seen their wealth decline,” says Rebeca Gowland, international director of Patriotic Millionaires, an association founded in 2010 in the U.S. in response to a letter that 60 millionaires sent to then president, Barack Obama, asking him to raise taxes on the largest fortunes. It now brings together more than 300 people. “The current economic system is designed to benefit a handful of very wealthy people. Working people pay much higher tax rates.”

There is no shortage of data and the facts speak for themselves. The number of billionaires is modest — about 2,700 people — but their fortune is overwhelming and continues to multiply. This grew by 7% between 2022 and 2023, to more than $12 trillion, according to the latest Billionaire Ambitions Report from Swiss bank UBS. Most of them are based in the United States. Another remarkable feature is that the new super-rich have acquired this status through inheritance rather than entrepreneurial enterprise. In other words, on the basis of birth and not because of their work. Three decades ago, in 1995, there were only 377 taxpayers regarded as multimillionaires, accumulating less than one billion dollars.

This modest but powerful circle of individuals is not only accumulating more wealth, it is also sharpening its strategies to ease its bill to the public treasury. According to the EU Tax Observatory’s Global Tax Evasion 2024 report, the mega-rich — i.e., those with wealth in excess of $1 billion — pay a derisory percentage of personal taxes like personal income tax relative to their fortune: an effective rate of between 0% and 0.5%.

There are many examples of this. When the pandemic was still at its height in the summer of 2021, the income tax returns of the 25 richest people in the U.S., such as Elon Musk, Bill Gates and Michael Bloomberg, were published. According to this information released by the ProPublica network of journalists, the country’s leading tycoons shoulder a lower effective rate than the working class.

A good part of this paradox simply stems from the fact that the system allows it. Wealth, in the sense of property, shares, companies, enjoys a preferential tax treatment to earned income. In the U.S., the wealthiest are also big consumers of tax engineering services: they structure their estates so that they generate lower income and taxable earnings, using instruments such as asset-holding companies, for instance.

The French finance minister, Bruno Le Maire, made this very clear at the meeting with his counterparts at the G20 recently held in São Paulo. “The wealthiest can avoid paying the same rate of tax as others who are less wealthy. We want to prevent this,” he said. And he delivered a declaration of intent: “We want Europe to push forward this idea of minimum taxation for individuals as quickly as possible, and France will be at the forefront.”

On the same stage, his Brazilian counterpart, Fernando Haddad, urged to act “together” to limit tax evasion and avoidance by the mega-rich and to establish a global tax on large fortunes, in line with the minimum tax on multinationals approved by more than 140 countries under the leadership of the OECD (Organization for Economic Co-operation and Development).

I think there is no prospect of seeing a global minimum tax on the wealthy in the short term.

Pascal Saint-Amans, an analyst at the Bruegel think tank

“There is a growing sensitivity on this issue,” admits Pascal Saint-Amans, an analyst at the Bruegel think tank and a leading expert on multilateral tax negotiations. He experienced these negotiations first-hand for many years: he was director of the OECD’s Center for Tax Policy and Administration when the agreement on the taxation of multinationals was reached. He left his post after the accord was finalized. Perhaps for this reason, having been behind the scenes, he remains cautious about the possibility of following the same path for billionaires: “Personally, I think there is no prospect of seeing a global minimum tax on the wealthy in the short term.”

All countries differ considerably, with some having high taxes and others almost non-existent, Saint-Amans explains. “However, there must be a way to fight tax competition from the wealthy, who are more mobile [they have a better means of changing residence] than the rest of the population. For instance, the OECD could start working to address harmful prosecutorial practices. In the long term, there could be room for increased cooperation. Let’s not forget that the end of banking secrecy has already come about, allowing countries to tax capital more effectively,” he points out.

This view is shared to some extent by the U.S. economist Kimberly Clausing, professor at UCLA and member of the Peterson Institute for International Economics: “I think it is a good starting point to have this conversation and understand why it is desirable to tax those at the top, at least minimally. And another starting point might be Europe. Because there is enormous mobility, but tax rates are mainly set at the level of the nation state. I could set the example and generate consensus. But I think it’s more difficult to get 140 countries together and say ‘we’re all going to agree on a certain minimum rate.’”

She argues that the distribution of income and wealth varies from country to country. “It makes no sense for Sweden and the United States to adopt the same marginal rate, because the underlying economic problems are quite different, even though both are wealthy countries. So, we can start with the exchange of information, ensure that countries enforce their own laws, build some type of intellectual argument or consensus around the tax system playing a crucial role,” she adds.

One of the biggest drivers of consensus or, at least, information on the subject, through his academic and research work, is the French economist Gabriel Zucman. Professor at the University of Berkeley, the Paris School of Economics and director of the EU Tax Observatory, he has recently presented to the G20 Finance Ministers his proposal for a minimum tax on high-net-worth individuals. The initiative, detailed in the Global Tax Evasion report he co-authored, would raise an additional $250 billion a year on a global scale, according to his calculations.

Wealth tax

Spain is not home to major fortunes compared to neighboring countries: it only had 24 billionaires in 2023, who accumulated a combined net worth of $129 billion, according to UBS data. In Germany there were 109 contributors, totaling $496 billion, compared to 34 in France, which nonetheless had a very high concentration of wealth ($501 billion). Despite these figures, Spain is the only member of the EU that taxes wealth in its totality through not one, but two taxes: the regional wealth tax, and the tax on large fortunes, which is a state tax of a temporary nature, but which the government intends to make permanent. In Europe, only Switzerland and Norway have similar figures.

“Most countries have eliminated wealth tax in recent years (one of the most recent cases is France) because it has a negative effect on investment and collects very little. It is an obsolete figure and entails double taxation: it taxes assets that have already been taxed, for example, on income or inheritance and donations,” argues Cristina Enache, economist at the Tax Foundation think tank. She believes that, although there is an open debate on the taxation of large fortunes at international level, “you cannot impose barriers”: “The issue has appeared on the agenda, but I don’t see any way forward for it.”

The idea that the Spanish wealth tax is obsolete and brings in very little revenue is widely shared by economists on all sides. The new tax on large fortunes has not represented a qualitative leap either: it follows the design of its regional counterpart, except for the fact that the threshold from which it is required is higher at €3 million. However, there is broad consensus on maintaining inheritance tax and, at the same time, on the need to thoroughly overhaul wealth tax.

Although it is common to talk about a tax on millionaires or on wealth, the reality is more complex. There are different dimensions of wealth — real estate properties, bank accounts, companies, shares, dividends, inheritances, donations, and so on — and therefore differing ways to demand a higher contribution from the wealthiest people. Indeed, although France has eliminated the equivalent of a wealth tax, it has maintained special taxation for certain assets, as other countries have done.

Zucman and his team’s proposal is to implement a global minimum tax of 2% only for billionaires. This would be calculated according to their wealth since, he argues, it is the measure that best defines the economic capacity of the group, and not just income. “This is in line with what has been carried out in the taxation of multinationals. There is an international agreement on a global minimum tax of 15% that has been applied in the EU since January 1 of this year. The next step is to do the same with extremely wealthy people,” he said in a recent interview with EL PAÍS. And, if no agreement is reached, he urges each country to move forward unilaterally.

Abdul Muheet Chowdhary, of the South Center Tax Initiative, an organization representing developing countries, shares the same view. “International cooperation and unilateral solutions are complementary,” he says. “Countries should immediately consider implementing unilateral solutions because it is currently the viable option. There is no ready-made international solution and it will take time to develop one. Nonetheless, it is clear that relying on unilateral solutions is not enough,” because there is a risk that the large fortunes will relocate residences.

There is also a general feeling of momentum. The reform of corporate taxation has arrived at a sort of end of cycle with the implementation of the 15% minimum rate. Although work continues on the other facet of the OECD agreement, the so-called Pillar One — tax on part of the profits of the largest multinationals — it is already considered defunct because the United States and China, where most of these companies are based, will not apply it. On the other hand, the global South is clamoring to have a greater say in the international tax debate, and it is doing so through a new route: the United Nations. In November last year, the bloc of developing economies prevailed in negotiating a new global fiscal framework inside the organization.

“In the immediate future, reform could be advocated by those countries that have the most to gain from this tax, where the billionaires reside: U.S. and Europe,” says Chowdhary, who also represents the South Center on the U.N.’s wealth tax subcommittee. He acknowledges, however, that the few national figures that have to date taxed large fortunes have not accomplished much in the way of tax justice. “But the fact that it has not happened in the past does not mean that it cannot happen in the future. Wealth taxes have huge potential and, if well conceived, can reduce inequality and improve redistribution.”

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