Can the uber-rich worldwide be taxed better? | Explained Premium
The Hindu
What has French economist Gabriel Zucman suggested in a report? Is imposing an annual 2% tax on ultra-high-net-worth individuals feasible? How much could a minimum tax on dollar billionaires potentially raise?
The story so far: French economist Gabriel Zucman has in a recent report commissioned by Brazil’s G-20 presidency recommended an annual 2% tax on individuals holding wealth exceeding $1 billion a suggestion intended to serve as the starting point for a global discussion on ensuring under-taxed billionaires are made to contribute more to reduce inequality worldwide. Finance Ministers of the G-20 group are set to meet in Rio de Janeiro on July 25-26, and the proposal is expected to be discussed at the meeting.
Mr. Zucman, an economist who has extensively researched the accumulation, distribution and taxation of global income and wealth, has proposed the adoption of an internationally coordinated minimum tax standard for ensuring effective taxation of ultra-high-net-worth individuals. This he argues would be the basic requirement to safeguard global tax progressivity. At the minimum, he recommends that individuals possessing more than $1 billion in total wealth (assets, equity shares in both listed and unlisted companies, other ownership structures that enable participating in companies’ ownership, etc.) would be required to pay a minimum amount of tax annually that would be equal to 2% of their wealth.
Such a minimum tax on billionaires could potentially raise $200-$250 billion a year globally from about 3,000 individuals, and were it to be extended to cover those with a net worth exceeding $100 million, would add $100-$140 billion annually in global tax revenue.
As per a key finding of the Global Tax Evasion Report 2024, prepared by researchers at the EU Tax Observatory, global billionaires benefit from very low effective tax rates, which range between 0% and 0.5% of their wealth. “When expressed as a fraction of income and considering all taxes paid at all levels of government (including corporate taxes, consumption taxes, payroll taxes, etc.), the effective tax rates of billionaires appear significantly lower than those of all other groups of the population,” the researchers write.
Mr. Zucman in his report to the G-20 presidency posits that the wealth of the top 0.0001% households, expressed as a fraction of world GDP, has surged more than fourfold since the mid-1980s. “In 1987, the top 0.0001% owned the equivalent of 3% of world GDP in wealth. This wealth gradually rose to 8% of world GDP on the eve of the global financial crisis of 2008-2009. It briefly fell during the crisis, and then rose fast to exceed 13% of world GDP in 2024.” The average annual growth rate of this population group’s wealth is 7.1% net of inflation. In contrast, over the same almost four-decade period, the average income of an adult grew annually by 1.3% net of inflation, and average wealth increased by 3.2% a year.
“As long as ultra-high-net-worth individuals keep having higher net-of-tax returns than the rest of the population, their share of global wealth will keep rising — an unsustainable path,” argues Mr. Zucman. Emphasising that “progressive taxation is a key pillar of democratic societies” that helps strengthen social cohesion and trust in governments to work for the common good, the French economist stresses that it is needed to help fund public goods and services. Better tax revenues are also crucial to meet the investments required to address the climate crisis.
The French economist cites research that shows contemporary tax systems worldwide are not effectively taxing the wealthiest individuals. As a result ultra-high-net-worth individuals tend to pay less in tax relative to their income than other social groups, regardless of the specific tax design choices and enforcement practices of countries. Income taxes, which in principle constitute the main instrument of progressive taxation, fail to effectively tax ultra-high-net-worth individuals. This in turn deprives governments of substantial tax revenues and contributes to concentrating the gains of globalisation into relatively few hands, undermining the social sustainability of economic globalisation, he argues.