Global Plan to Tax the Ultra-Rich

It is now on the agenda, but obstacles include US opposition

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Editor´s Note

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“G20 finance ministers agree to work toward effectively taxing the super-rich,” read the headline report from the meeting in Rio de Janeiro last meeting. At the initiative of the host country Brazil, the ministers agreed to consider putting a 2% minimum tax on billionaires at their summit on November 19 and 20.

The richest 1% have amassed $42 trillion in new wealth over the past decade, nearly 36 times more than the entire bottom 50% of the world’s population, according to an Oxfam analysis released Thursday ahead of the finance ministers’ meeting.

Billionaires currently pay the equivalent of 0.3% of their wealth in taxes, according to a report by Gabriel Zucman, commissioned by Brazil. A 2% tax would raise $200 billion to $250 billion per year globally from about 3,000 individuals, money that could fund public services such as education and health care as well as the fight against climate change, the report said.

While Brazil, France, Spain, and South Africa back the proposal, the United States and Germany are opposed. The G20 is made up of 19 countries and two regional bodies: the African Union and the European Union. [10+2 is 21, but the name remains a round number!] The members of the G20 represent around 85% of the world's GDP, more than 75% of world trade and around two-thirds of the world's population.

In the United States, Senator Elizabeth Warren and Representative Pramila Jayapal and Brendan Boyle reintroduced in May the Ultra-Millionaire Tax Act, which would impose a 2% tax on wealth exceeding $50 million, and 3% on wealth exceeding $1 billion. But it has only 36 co-sponsors in the House of Representatives and only 7 in the Senate.

This AfricaFocus Notes contains the summary of Gabriel Zucman´s report, the annual Oxfam update on current global inequality, and a short oped from The Hill, which covers congressional news, summarizing the system of hidden wealth that enables this concentration of wealth.

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A blueprint for a coordinated minimum effective taxation standard for ultra-high-net-worth individuals

by Gabriel Zucman, June 25th, 2024

https://gabriel-zucman.eu/files/report-g20.pdf

Summary of 40-page report: 

This report presents a proposal for an internationally coordinated standard ensuring an effective taxation of ultra-high-net-worth individuals. In the baseline proposal, individuals with more than $1 billion in wealth would be required to pay a minimum amount of tax annually, equal to 2% of their wealth. This standard could be flexibly implemented by participating countries through a variety of domestic instruments, including a presumptive income tax, an income tax on a broad notion of income, or a wealth tax. The report presents evidence that contemporary tax systems fail to tax ultra-high-net-worth individuals effectively, clarifies the case for international coordination to address this issue, analyzes implementation challenges, and provides revenue estimations. 

The main conclusions are that: 

(i) building on recent progress in international tax cooperation, such a common standard has become technically feasible; 

(ii) it could be enforced successfully even if all countries did not adopt it by strengthening current exit taxes and implementing “tax collector of last resort” mechanisms as in the coordinated minimum tax on multinational companies; 

(iii) a minimum tax on billionaires equal to 2% of their wealth would raise $200-$250 billion per year globally from about 3,000 taxpayers; extending the tax to centimillionaires would add $100-$140 billion; 

(iv) this international standard would effectively address regressive features of contemporary tax systems at the top of the wealth distribution; 

(v) it would not substitute for, but support domestic progressive tax policies, by improving transparency about top-end wealth, reducing incentives to engage in tax avoidance, and preventing a race to the bottom; 

(vi) its economic impact must be assessed in light of the observed pre-tax rate of return to wealth for ultra-high-net-worth individuals which has been 7.5% on average per year (net of inflation) over the last four decades, and of the current effective tax rate of billionaires, equivalent to 0.3% of their wealth.

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Top 1 percent bags over $40 trillion in new wealth during past decade as taxes on the rich reach historic lows

25th July 2024

https://www.oxfam.org/en/press-releases/top-1-percent-bags-over-40-trillion-new-wealth-during-past-decade-taxes-rich-reach

The richest 1 percent have amassed $42 trillion in new wealth over the past decade, nearly 34 times more than the entire bottom 50 percent of the world’s population, according to new analysis by Oxfam today ahead of the third meeting of G20 Finance Ministers and Central Bank Governors in Rio de Janeiro, Brazil.

The average wealth per person in the top 1 percent rose by nearly $400,000 in real terms over the last decade compared to just $335 – an equivalent increase of less than nine cents a day – for a person in the bottom half.

This week G20 Finance Ministers are expected to lay the foundations of a groundbreaking global deal to increase taxes on the super-rich. Championed by the Brazilian G20 Presidency and backed by countries including South Africa, Spain and France, the proposal comes amid growing public demand for measures to rein in extreme levels of inequality and ensure that the rich pay their fair share.

“Inequality has reached obscene levels, and until now governments have failed to protect people and planet from its catastrophic effects,” said Oxfam International’s Head of Inequality Policy, Max Lawson. “The richest one percent of humanity continues to fill their pockets while the rest are left to scrap for crumbs.”

“Momentum to increase taxes on the super-rich is undeniable, and this week is the first real litmus test for G20 governments. Do they have the political will to strike a global standard that puts the needs of the many before the greed of an elite few?” Lawson said.

A “war on fair taxation” has seen tax rates on the wealth and income of the richest collapse. Oxfam has calculated that less than eight cents in every dollar raised in tax revenue in G20 countries now comes from taxes on wealth. Oxfam’s research also found that the share of income of the top 1 percent of earners in G20 countries has risen by 45 percent over four decades while top tax rates on their incomes were cut by roughly a third.

Globally, billionaires have been paying a tax rate equivalent to less than 0.5 percent of their wealth. Their fortunes have risen by an annual average of 7.1 percent over the last four decades, and an annual net wealth tax of at least 8 percent would be needed to reduce billionaires’ extreme wealth. G20 countries are home to nearly four out of five of the world’s billionaires. 

Notes to editors

Oxfam, Avaaz, the Patriotic Millionaires, TaxMeNow, 350.org, the Fight Inequality Alliance and WeMoveEurope will hand in petitions with over 1.5 million signatures from people across the world calling on G20 leaders to tax the ultra-rich to Brazilian Finance Minister Fernando Haddad in Rio de Janeiro on 24 July.

Earlier this month, close to 20 former heads of state and government of G20 and higher-income countries called on current G20 leaders, including US President Joe Biden, German Chancellor Olaf Scholz and UK Prime Minister Keir Starmer, to support a “new global deal to tax the world’s ultra-rich individuals” in an open letter.

Polling consistently finds that most people across countries support raising taxes on the richest. For example, the majority of people in the US, 80 percent of Indians, 85 percent of Brazilians and 69 percent of people polled across 34 countries in Africa support increasing taxes on the rich.

Nearly three-quarters of millionaires polled in G20 countries support higher taxes on wealth, and over half think extreme wealth is a “threat to democracy.” 72 percent think that extreme wealth helps buy political influence.

Oxfam has calculated that for every $1 raised in tax in G20 countries, less than 8 cents comes from taxes on wealth.

Oxfam’s research found that the share of national income going to the top 1 percent of earners in G20 countries has increased by 45 percent over the last four decades. During the same period, the top tax rates on their incomes has fallen by roughly a third (from around 60 percent in 1980 to 40 percent in 2022).

Oxfam has calculated that to keep billionaires’ wealth constant over the last two decades, we would have needed an annual net wealth tax of more than 8 percent across all countries. To keep their wealth constant between 2016 and 2021, we would have needed an annual net wealth tax of 12.8 percent.

According to the EU Tax Observatory, global billionaires have very low personal effective tax rates, of between 0 percent and 0.5 percent of their wealth.
Contact information

Annie Thériault in Peru | annie.theriault@oxfam.org | +51 936 307 990
Matt Grainger in the UK | matt.grainger@oxfam.org | +44-07730680837

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Dismantle the global system that lets the rich hide their wealth

By Daniel Calingaert, Opinion Contributor - 06/26/24

Daniel Calingaert is dean for global programs at Bard College.

https://thehill.com/opinion/finance/4740371-dismantle-the-global-system-that-lets-the-rich-hide-their-wealth/

Scandal after scandal involving secret wealth has grabbed attention in recent years, then faded from public view. But the system for hiding vast sums of money still remains in place.

It is a global system of financial secrecy, estimated to hold over $50 trillion across more than 70 jurisdictions in millions of hidden accounts, secret trusts and anonymous corporations. It is used to conceal wealth and avoid taxes. It should be dismantled entirely.

Multinational corporations, including such leading brands as Apple, Nike and Uber, have dodged taxes by shuffling profits around different offshore tax havens. Billionaires have done the same. They enjoy the benefits of national governments — legal protections, infrastructure, educated workforces and more — but skip out on the bill. They play by their own set of rules, while salaried employees and wage earners have to pay their fair share. Financial secrecy thus undermines democracy.

Leaders from around the world have hidden their wealth offshore, including former or then-serving prime ministers of Argentina, Australia, the Czech Republic, Iceland and the United Kingdom; finance ministers of Brazil, France and the Netherlands; and a U.S. Secretary of Commerce. They take part in a system that benefits wealthy elites at the expense of the rest.

No wonder frustration with democracy globally has reached an all-time high, with majorities in the U.S. and elsewhere dissatisfied with the way democracy is working in their country.

Moreover, our adversaries use our financial secrecy against us. Sanctioned Russian oligarchs hide their assets in Europe and the U.S. behind opaque trusts, and Chinese entities rely on shell companies to mask their theft of intellectual property. Russia, China and other adversaries spend money covertly to interfere in political processes and influence government decisions in democratic countries.

The global system of financial secrecy was created by past policymakers. Today’s leaders can take it down. They should, as I detailed in a recent policy proposal, end corporate anonymity, eliminate secret financial instruments, make enablers liable for complicity in corruption and insulate our financial system from secrecy jurisdictions.

The U.S. needs to take the lead, because it is the world’s greatest enabler of financial secrecy — think Delaware shell companies, South Dakota secret trusts and luxury real estate in New York and Los Angeles. The U.S. is also best positioned to persuade fellow democracies to follow suit. Together with the European Union, U.K. and Japan, America can dismantle the global financial secrecy system.

Corporate transparency is starting to become the norm. The U.S., UK and EU now require companies to disclose who their actual “beneficial” owners are, but public access to registries of beneficial owners in many places is denied or restricted, and the island tax havens under British rule have yet to establish such registries.

Moreover, the U.S. beneficial ownership registry leaves big gaps: Private equity, venture capital and hedge funds are exempt, as are most trusts and digital assets (such as cryptocurrencies). These gaps are significant enough to make the registry futile, because illicit funds will flow to wherever secrecy remains. We need to plug these gaps.

We also need to rein in the professionals — lawyers, accountants, company service providers and more — who enable dirty money to enter the financial system. They should be made to follow anti-money laundering rules to know their customers and report suspicious activity and should be subject to harsh penalties if they break these rules.

To curb tax avoidance, multinational corporations should report their income, profits and economic activity by country, so that governments can tax them based on where their sales and employees are. This reform would minimize the benefits and thus the use of tax havens.

After these dominant financial systems are made transparent, they should be insulated from secrecy jurisdictions. Foreign banks should conduct due diligence on the beneficial owners of money they bring in, and if they fail to do so, they should be barred from our financial systems. Funds coming from or going to secrecy jurisdictions, such as Dubai and Turkey, should draw added scrutiny.

The global system of financial secrecy is designed to hide money, including dirty money, and to dodge taxes. It has no economic benefit, but is rather a drag on economic development, a driver of social tensions, a contributor to conflict and a threat to democracy. The time has come to dismantle this system.

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