How can we make the world’s richest people pay more taxes? Something that years ago might have seemed like science fiction now has a concrete proposal, embodied in a report commissioned by the Brazilian presidency of the G-20 to the French economist Gabriel Zucman, director of the European Union Fiscal Observatory, disciple of the leading figure in inequality and income distribution Thomas Piketty, and one of the greatest experts in international tax evasion and avoidance. According to the document, if the world’s richest individuals – the nearly 3,000 people whose assets exceed 1,000 million dollars, which is about 935 million euros at the current exchange rate – paid at least 2% of their wealth each year, the States would have between 200,000 and 250,000 million dollars in additional income worldwide.
The document arrives at a favorable time to introduce the debate. For many reasons: more and more wealth is concentrated in fewer hands, the contribution of billionaires to the treasury has been decreasing, the tools available to follow money flows and exchange information between countries are more than mature and, lastly, but No less important, an international consensus has already been achieved among more than 140 countries so that the largest multinationals in the world pay a minimum tax of 15%. In fact, the economist’s proposal partially traces the design of this figure.
The base proposal provides that people with a total wealth of more than 1,000 million, including real estate, shares, shares in companies and other assets, pay at least 2% of their total assets, as long as they no longer contribute to the public treasury in that amount in personal income taxes. “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 this Tuesday. On the other hand, countries could apply “last resort tax collection” mechanisms: that is, demand what others give up by not applying the common framework.
The economist defends that this 2% contribution be calculated on wealth and not on income, since it is a magnitude that is more difficult to manipulate and hide. In the base scenario, the additional collection for the States would be between 200,000 and 250,000 million, an average of more than 80 million per head among the 3,000 super-rich called to pay the tax, but other options are also being explored. If the framework were expanded to people with 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 550,000 and 690,000 million dollars, of which 55% would come from billionaires.
Triple that of 25 years ago
The fortune of the super-rich has tripled in the last 25 years. In 1985, it accounted for 3% of global GDP; now it is 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, such as income and wealth, is 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 opportunity, is the birthplace of the wealthiest personalities on the planet, from Bill Gates to Elon Musk, who are those who would be called upon to increase their contribution to the public coffers.
The document, published by the EU Fiscal 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 tax on presumed income. That is, governments could choose what measures to take. “It should not be seen as a wealth tax, but as a tool to strengthen income taxation,” the report reads. Furthermore, remember that the measure can be applied “successfully” even if not all countries implement it: “It would not replace, but rather support, national progressive tax policies.”
G-20 assignment
A handful of years ago it seemed impossible for more than 100 countries to agree for large multinationals to pay more taxes. But not only has a consensus been reached, but in general a reflection has been imposed on the need to restore progressivity to tax systems that have increasingly taxed labor income and less and less capital income. And within this new impulse the observatory proposal is framed.
Last February, the Brazilian presidency of the G-20 invited Zucman to São Paulo to explain to the finance ministers of the club of the richest countries how to improve the progressivity of the tax system, which is increasingly ossified. The economist then launched his proposal to tax billionaires internationally, and the agency commissioned a report to analyze the feasibility 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.
“Contemporary tax systems, instead of being progressive, do not effectively tax the richest people,” highlights the document titled A Plan for a Coordinated Effective Minimum Tax Rule for Ultra-High Net Worth Individuals“This failure deprives governments of substantial tax revenues and contributes to concentrating the benefits of globalization in relatively few hands, undermining the social sustainability of economic globalization.”
Pending tasks
The report, however, recognizes that there is still a long way to go. On the one hand, there are still gaps in the international exchange of information that make it difficult to identify the true owners of the assets. These shortcomings could be alleviated through country-by-country reports – an informative 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 the wealthiest comes from their participation in large groups. 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 has to be put in context: the return on billionaires’ pre-tax wealth has been 7.5% on average per year over the past four decades . This means that a 2% contribution would only affect them in a limited way, and given the small amount of population affected, it is more than likely that it will 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, that does not participate in the design of a global tax on the richest. But it is not a condition sine qua non: “The participation of all countries is not necessary for the norm to be effective: the effective implementation of the norm by a critical mass of countries would be enough to stop a race to the bottom.”
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