How to make the super-rich pay up to $250 billion more in taxes

The EU Tax Observatory is proposing a common framework for an internationally coordinated standard ensuring an effective taxation of ultra-high-net-worth individuals: those with more than $1 billion in wealth. Can it work?

Elon Musk
Elon Musk, one of the richest men in the world, in Los Angeles, California, last April.Mario Anzuoni (REUTERS)
Laura Delle Femmine

How to make the world’s richest people pay more taxes? Something that years ago might have seemed like science fiction, now has a concrete proposal, reflected in a report commissioned by the Brazilian presidency of the G-20 from the French economist Gabriel Zucman, director of the Tax Observatory of the European Union and a disciple of Thomas Piketty, himself a global reference in inequality and distribution of income. Zucman is also one of the world’s leading experts on international tax evasion and avoidance. According to the report, if the wealthiest individuals in the world — the nearly 3,000 people whose assets exceed $1 billion (about €935 million at the current exchange rate) were to pay at least 2% of their wealth each year, governments would raise $200-$250 billion per year globally.

The document arrives at a favorable time to introduce the debate. There are many reasons for it: more wealth is being concentrated in fewer hands; the contribution of billionaires to the treasury has been decreasing; the tools available to follow the money flows and exchange information between countries are very mature; and lastly, an international consensus was already achieved in 2021 among more than 140 countries to make the largest multinationals in the world pay a minimum corporate tax of 15%. In fact, the economist’s proposal partially imitates the structure of this agreement.

The baseline proposal provides that people with a total wealth of more than $1 billion — including assets, real estates, equities, participation in companies’ ownership and more — pay a minimum amount of tax annually, equal to 2% of their wealth, as long as they are not already contributing that amount in personal income tax. “It would not be a global tax, but a framework, a common standard to reduce the regressivity that occurs at the top of the income distribution,” Zucman himself clarified in the virtual presentation of the report, held on Tuesday. On the other hand, countries could apply “tax collector of last resort” mechanisms: that is, demand what others give up by not applying the common framework.

The economist defends that this 2% contribution should be calculated on wealth and not on income, since it is a value that is more difficult to manipulate and hide. In the baseline scenario, the additional collection for governments would be between $200 billion and $250 billion, an average of more than $80 million per person among the 3,000 ultra-high-net-worth individuals called to pay the tax, but other options are also being explored. If the framework were expanded to people with a net worth over $100 million, it would net an additional $100 billion to $140 billion a year; if the rate were 3%, the collection would range between $550 billion and $690 billion, of which 55% would come from billionaires.

Triple the fortunes of 25 years ago

The fortune of the mega-rich has tripled in the last 25 years. If in 1985 it represented 3% of global GDP, now it stands at 14%. But their contribution to the public treasury has not grown at the same rate. On the contrary, their contribution in terms of personal taxes is only 0.3% of their total wealth, since they have tools to avoid paying taxes, such as holding companies or similar structures. The United States, the so-called land of opportunities, is the cradle of the wealthiest personalities on the planet, from Bill Gates to Elon Musk, who are some of the individuals who would be called on to increase their contribution to the public coffers.

The report, published by the EU Tax Observatory, a European-funded research center, does not propose a global tax or a single tool to implement its proposal, but rather “a flexible standard that respects national sovereignty.” It could take the form of a modification to the income tax that encompasses a broader definition of income, or a presumptive income tax. That is, governments could choose what measures to take. “this minimum tax should be seen not as a wealth tax, but as a tool to strengthen the income tax,” the report reads. “Only billionaires who currently pay less than 2% of their wealth in tax would have to pay more. Their individual income tax payments would be topped up to reach 2% of wealth. This mechanism differs from a wealth tax of 2% for billionaires. A wealth tax would come in addition to any individual income tax paid, while the minimum tax proposed here would merely offset the failure of the income tax, when it fails.”

G-20 assignment

A handful of years ago it would have seemed impossible for more than 100 countries to agree on the need for large multinationals to pay more taxes. Not only has a consensus been reached, but in general there is reflection on the need to restore progressivity to tax systems that have increasingly focused on labor income and less on capital income.

In February, the Brazilian presidency of the G-20 invited Zucman to São Paulo to explain to the finance ministers of the club of the world’ richest countries how to improve the progressiveness of the tax system. The economist then launched his proposal to tax billionaires internationally, and the organization commissioned a report to analyze the viability and details of his plan.

“This is the beginning of the debate. And one of the great merits of this proposal is that it is flexible. Therefore, countries can implement it in different ways,” Felipe Antunes de Oliveira, coordinator of International Financial Affairs of the Brazilian Ministry of Finance, stressed during the presentation of the document. “In less than four months, there are already several countries that support this idea,” said Zucman, who mentioned, among others, Spain, France, Brazil, South Africa, Colombia and Belgium.

“Thanks to research conducted in recent years, there is now clear evidence that contemporary tax systems, instead of being progressive, do not effectively tax the wealthiest individuals,” highlights the report, titled A blueprint for a coordinated minimum effective taxation standard for ultra-high net worth individuals. “This failure deprives governments of substantial amounts of tax revenues. It contributes to concentrating the gains of globalization into relatively few hands, undermining the social sustainability of global economic integration.”

Pending tasks

The report, however, recognizes that there is still a long way to go. On one hand, there are still gaps in the international exchange of information that make it difficult to identify the true owners of assets. These shortcomings could be alleviated through country-by-country reports — an information statement presented by the largest multinationals, following OECD standards, about their contribution in the countries where they operate — and adding details about their effective owners, since that the bulk of the wealth of ultra high-net work individuals comes from their stakes in large companies. For example, identifying individuals who own more than 1% of the shares.

The economists’ calculations also highlight that the impact of a minimum tax on billionaires should be placed in context: the observed pre-tax rate of return to wealth for ultra-high-net-worth individuals has been around 7.5% on average per year over the last four decades globally. This means that a 2% contribution would only affect them in a limited way, and given the small amount of the population affected, it is more than likely that it would have no impact on global economic growth.

On the other hand, there is the eternal problem of a globalized world, in which it is extremely easy to change residence to a country with lower tax pressure or, in this case, one that does not participate in the design of a global tax on the richest. But it is not a condition sine qua non: “There is no need for the participation of all countries for the standard to be effective: effective implementation of the standard by a critical mass of countries would be enough to curb a race to the bottom.”

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