Organisations fighting inequality and hunger, such as the Oxfam coalition, support calls for the world’s rich to be taxed more fairly. A new study, sponsored by Brazil, will be the basis for debating the issue among the world’s most powerful economies. Credit: Oxfam
By Humberto Márquez
CARACAS, Jun 27 2024 – A global agreement could levy a small tax on the world’s 3,000 richest people, with fortunes in excess of US$ 1 billion, and use the money to fight world hunger, a study by the Brazilian government and the European Union’s Tax Observatory has shown.
The richest “are paying less than other socio-economic groups. This is a simple proposal, to make them pay at least two per cent per year of their wealth or income, and thus raise between US$ 200 billion and 250 billion each year,” said Gabriel Zucman, the French economist who led and presented the study.
If the tax were extended to owners of fortunes of more than US$ 100 million, an additional US$ 100 billion to 150 billion could be raised, said Zucman, director of the Tax Observatory and professor of economics at the Ecole Normale Supérieure in Paris and the University of California at Berkeley, in the United States.
The proposal and the study are driven by Brazil’s president, the moderate leftist Luis Inácio Lula da Silva, the current president of the Group of 20 (G20), who will present it for debate at the summit of this club of the world’s main industrial and emerging economies, late this year in Rio de Janeiro.
For Lula, “it is time for the super-rich to pay their fair share of taxes”, and to direct those resources towards combating hunger and poverty in developing countries, he said this month at meetings of the Group of 7 – Western powers – and the International Labour Organisation.
Lula commissioned Zucman’s team to prepare the technical study, “A blueprint for a coordinated minimum effective taxation standard for ultra-high net worth individuals”, which the economist presented online on 25 June, followed by a chat with a small group of journalists, including IPS.”It is a choice between opacity and transparency. Tax evasion is not a law of nature”: Gabriel Zucman.
“It is essential to ensure that everyone pays their fair share of taxes”, said Brazil’s finance minister, Fernando Haddad, following Zucman’s presentation. “The Brazilian presidency of the G20 has put international tax cooperation at the top of the agenda of the group’s financial track”, he added.
Susana Ruiz, head of tax policy at Oxfam International, the global anti-poverty coalition, said: “We welcome the Zucman report, which offers a critical contribution toward fixing a system that allows the ultra-rich to avoid taxes and not only accumulate and protect astronomical amounts of wealth and income ―but also hide it from governments.”
“Taxing the ultra-rich properly could raise billions of dollars for governments to combat inequality and tackle the climate crisis,” said Ruiz.
When he hosted the president of Benin, Patrice Talon, in May, Lula argued that “if the world’s 3,000 billionaires paid a 2 per cent tax on the earnings of their wealth, we could generate resources to feed the 340 million people in Africa who are facing extreme food insecurity.”
However, the report – and Zucman’s presentation – have not addressed the destination of the resources to be raised: “I can’t say how the money will be used. The distribution has to be decided by the people with their deliberations and democratic vote,” he said.
Economist Gabriel Zucman, of the European Union’s Tax Observatory, during the presentation of the study, that claims a two per cent tax on the world’s largest fortunes would raise US$ 250 billion per year, which was seen in many capitals online. Credit: Humberto Márquez/IPS
The very rich pay very little
Zucman argued that “billionaires and the companies they own have been the main beneficiaries of globalisation. This raises the question of whether contemporary tax systems manage to distribute these earnings adequately or, on the contrary, contribute to concentrating them in a few hands.”
In almost four decades – from 1987 to 2024 – the wealth of the very rich, 0.0001 per cent of the population, grew at an average 7.1 per cent per year and captured 14 per cent of the global gross domestic product, while the average wealth per adult increased by no more than 3.2 per cent.
On average, billionaires pay an effective tax rate of just 0.3 per cent of their wealth, less than other socio-economic groups.
This is largely because they own conglomerates of companies or publicly traded shares, and through these mechanisms they report, for example, lower annual taxable income than their actual wealth.
Zucman said his proposal “is very simple: that they pay 2 per cent of their wealth or income (a combination of income and wealth taxes) and thus equalise with other socio-economic groups.”
Publications such as Forbes constantly feature the world’s wealthiest individuals, all of them men, including tech start-up tycoons. A new era of transparency about their tax contributions must be ushered in, say the promoters of a new combined income and wealth tax: Credit: Valora Analitik
How to do it?
The key, Zucman explains, is to define a minimum market value that is difficult for billionaires to manipulate, “and that can now be done with the thousands of tax analysts around the world, as banking secrecy is lifted and with greater coordination between countries.”
An example of this coordination is the well-known Pillar 2 of the OECD (Organisation for Economic Cooperation and Development), which in 2021 proposed taxing at least 15 per cent of the income of transnational firms in industrialised nations, “something that did not seem possible 10 years ago”, he adds.
The basis of the new tax would be to estimate the presumed profit along with the wealth in stock and company shares. “There are also the planes, yachts, Picassos, but that is a very small part of global wealth,” according to the expert.
He admitted that billionaires might move to countries that do not levy them with the new taxes, but the state where they have their property and original sources of income can continue to tax their wealth even while abroad.
“I think this taxation mobility tends to be exaggerated in public debates,” said Zucman.
Ideally, he said, “the standard should progress as more countries join”, and a new form of cooperation between countries should be established, respecting each other’s sovereignty. “There is no need for a new international treaty,” he said.
A recent survey among G20 countries by the French firm Ipsos showed that 67 per cent of adults think there is too much economic inequality, and 70 per cent believe the rich should pay higher taxes, according to the Tax Observatory.
Support for a wealth tax on the rich is highest in Indonesia (86 per cent), Turkey (78 per cent), the UK (77 per cent) and India (74 per cent). It is lowest in Saudi Arabia and Argentina (54 per cent), but still exceeds half of respondents.
In the US, France and Germany, around two thirds of respondents support a wealth tax on the rich.
“It would be naïve to assume that all taxpayers will be in favour. But it is also a choice between opacity and transparency. Tax evasion is not a law of nature,” summarised Zucman.
Finally, he stressed that the aim of the report, which began in February, “is to launch a global policy conversation, not to end it”.
The first major global debate among the world’s leading economies will take place when G20 finance ministers meet in Rio de Janeiro on 25-26 July. But it is already clear that the road, at best, will be a long one.