World
Just 2% tax on wealth of 2,700 billionaires could means $250 bn annually
As public finances struggle to deal with an ageing population, enormous financial demands for the climate transition, and legacy COVID debt, growing income inequality in some countries is fueling calls for the richest individuals to shoulder more of the tax burden
Ajeyo Basu Last Updated:October 23, 2023 17:44:01 IST
A 25% minimum tax on the wealthiest 0.01% was proposed in U.S. President Joe Biden's 2024 budget, but it has since been abandoned since Washington lawmakers are focused with potential government shutdowns and approaching funding deadlines Image Courtesy Reuters
The EU Tax Observatory stated on Monday that governments should start a new front in the fight against tax evasion by imposing a $250 billion per year global minimum tax on billionaires.
The amount, if imposed, would only represent 2% of the almost $13 trillion in wealth held by the 2,700 billionaires worldwide, according to the study team based at the Paris School of Economics.
According to the organization’s 2024 Global Tax Evasion Report, billionaires’ effective personal tax rates are currently frequently far lower than those paid by other taxpayers with lower incomes. This is because they can stash money in shell firms that shield them from income tax.
“In our view, this is difficult to justify because it risks to undermine the sustainability of tax systems and the social acceptability of taxation,” the observatory’s director Gabriel Zucman told journalists.
According to the Observatory, the personal tax paid by billionaires is approximately 0.5% in the United States and as low as 0% in normally high-tax France.
As public finances struggle to deal with an ageing population, enormous financial demands for the climate transition, and legacy COVID debt, growing income inequality in some countries is fueling calls for the richest individuals to shoulder more of the tax burden.
A 25% minimum tax on the wealthiest 0.01% was proposed in U.S. President Joe Biden’s 2024 budget, but it has since been abandoned since Washington lawmakers are focused with potential government shutdowns and approaching funding deadlines.
Although it might take years for a coordinated global effort to tax billionaires, the Observatory cited the achievement of governments in almost eradicating bank secrecy and limiting chances for multinational corporations to shift revenues to low-tax nations.
According to the observatory, the amount of wealth stored in offshore tax havens has decreased by a factor of three since the automatic sharing of account information went into effect in 2018.
By establishing a global 15% floor on corporate taxation as of the next year, a 2021 agreement between 140 countries will restrict multinationals’ ability to reduce tax by posting profits in low-tax jurisdictions.
“Something that many people thought would be impossible, now we know can actually be done,” Zucman said. “The logical next step is to apply that logic to billionaires, and not only to multinational companies.”
Zucman claimed that in the absence of a strong international movement in favour of a minimum tax on billionaires, a “coalition of willing countries” may take the initiative.
Despite the fact that the corporate minimum tax and the end of banking secrecy have ended decades of tax rate competition among nations, the research noted that there are still many ways to cut taxes.
For instance, wealthy people are increasingly investing in real estate rather than offshore accounts, and businesses can take advantage of the 15% corporate tax minimum’s loopholes.
According to the Observatory, governments are increasingly vying for investment through subsidies, even if doing so is less damaging to their tax bases than merely offering low tax rates.
(With agency inputs)