Minimum tax on billionaires would raise up to $408 billion a year, says report

French economist Gabriel Zucman says very few people believe billionaires should have lower tax rates than other social groups. Photo / Francois Walschaerts, Pool via AP, File

A global minimum tax on billionaires raising up to $250 billion (NZ$408b) a year is “technically feasible” and could be successfully enforced even if it was not adopted by every country, according to a report commissioned by the G20.

Gabriel Zucman, an economist and author of the paper, said a co-ordinated minimum tax on the total wealth of the world’s 3000 billionaires was needed to increase their contributions.

The current effective tax rate of billionaires was equivalent to just 0.3 per cent of their wealth, said the report, which was published on Tuesday. G20 finance ministers meet to discuss the proposals next month.

“Very few individuals agree with the notion that billionaires can have lower tax rates than other social groups,” Zucman, a professor of economics at the Paris School of Economics and at the University of California, Berkeley, told the Financial Times.

“The super-rich shouldn’t pay less tax than schoolteachers or fire fighters. That’s just not OK.”

The report recommended individuals with more than $1b in total wealth, including assets such as real estate, equity stakes and larger corporate shareholdings, pay a minimum amount of tax equal to 2 per cent of their wealth.

This would raise $200bn-$250b a year, it said. Extending the levy to individuals with a net worth of more than $100m would raise an additional $100b-$140b. Individuals who already pay more than 2 per cent of their wealth in income tax would face no extra tax liability.

Zucman said a level of 2 per cent would help the total tax levy from being seen as regressive for the super-rich. “We’re talking about 2 per cent. That’s not very much. We’re not talking about making it progressive but just making it less regressive.”

The study said developments over the past 15 years, such as the widespread ending of bank secrecy laws and automatic exchange of information between tax agencies, meant authorities were in “a better situation” to successfully implement the proposal.

However, it acknowledged there were “several potential challenges” associated with the idea. These included the difficulties of valuing individuals’ wealth, improving compliance and ensuring effective taxation if some countries refused to implement the levy.

Dan Neidle, founder of the think tank Tax Policy Associates, was more critical, arguing the proposal would struggle to gain traction where it mattered. “The two countries with the largest number of billionaires are the US and China. Neither will realistically implement this,” he said.

To be effective, the report said countries would need to create new forms of cross-border information exchange on rich individuals. Nations would also need to boost identification of the ultimate beneficial ownership of financial and other assets including properties, companies and other legal vehicles.

‘Tax collector of last resort’

If some jurisdictions did not enact the measure, Zucman said countries could employ exit taxes or use a “tax collector of last resort” mechanism similar to that introduced in the global minimum corporate tax, which came into effect this year.

Under the reform, if profit by a multinational is taxed below a minimum 15 per cent effective tax rate in one country, other countries can charge a top-up levy.

“That’s very important because it provides incentives for all countries to join the agreement. Not joining means leaving tax revenue on the table for others to collect,” Zucman said.

Brazil, which holds the G20 presidency, has been championing the idea of increasing taxation on the super-rich. It commissioned the report after inviting Zucman to speak to G20 finance ministers in February.

Ministers from South Africa, Spain, France and Germany have backed the proposal. Zucman said Belgium, Colombia, and the African Union were also supportive of the levy. But US Treasury secretary Janet Yellen seemed to reject the idea last month.

“The goal of the report is to start the conversation, not to end it,” Zucman added. “We can make [a global tax on billionaires] work, but now there’s a political decision that needs to be made.”

Written by: Emma Agyemang in Copenhagen

© Financial Times