July 29, 2024
📰 FEATURE STORY
Can Gabriel Zucman’s billionaire tax model work?
Earlier this year, as leaders met at the annual World Economic Forum (WEF) in Davos to discuss issues plaguing the world, Oxfam released a startling report with this headline – since 2020, the world’s five richest men have more than doubled their fortunes while 5 billion have become poorer. That’s a striking statistic that illustrates how ingrained inequality is worldwide.
How do you change this? French economist Gabriel Zucman has an idea. At a meeting of Finance Ministers of G20 nations in Brazil a few months back, he proposed a global minimum tax on billionaires. His reasoning is that there’s better data on how much the super-rich earn and how they’ve avoided paying their fair share. Can the idea of a minimum tax on them work?
Context
Understanding global inequality begins with acknowledging that not everyone enjoys the same rights and opportunities. If you’re born into a family that’s in poverty or face discrimination, these only complicate matters and become barriers to equality.
Global inequality is the unequal distribution of resources, power, and opportunities among the 8 billion people on this planet. Economic inequality, in particular, is the unequal distribution of income. It’s perhaps the most striking dimension of global inequalities.
If we go back to the 1800s, when living standards were lower compared to today, for obvious reasons, the differences in wealth and power were closer. It was only after the Industrial Revolution that things began to change. There was a rapid growth in income in Western Europe, the USA, Australia, and Canada compared to elsewhere. Cut to today, and the picture is quite bleak.
One aspect of economic inequality is that it’s often intertwined with societal issues. The absence of women’s voices in decision-making, their participation in the labour force, or a system that discriminates against people who come from a lower class are a few examples.
The pandemic made things a whole lot worse. According to the World Bank, the poorest 40% lost twice as much income as the wealthiest 20%. That’s the highest increase since 1990.
So, what can be done about all this? Over the years, several approaches have been discussed – including women, workers, and people from marginalised communities in decision-making and policymaking, foreign aid to support local institutions, and financial commitments to help climate-vulnerable countries, to name a few.
But there’s one that has gained traction – taxing billionaires. It became clear that the uber-rich kept getting richer but weren’t paying their fair share of taxes. It’s what Gabriel Zucman wants countries to do. Let’s tax billionaires 2% of their wealth every year. Can this be actually done, and would it reduce inequality?
VIEW: It’s high time
Let’s begin with the fact that countries have somewhat recognised that global inequality has gotten out of hand. So much so that in 2021, over 130 countries agreed to apply a minimum 15% tax rate on the profits of large multinational companies. So, it’s not like countries aren’t going to at least entertain the idea of a 2% tax on the wealthiest among us.
More good news – even the wealthiest want to be taxed more. Going back to the WEF meeting earlier this year, 260 millionaires and billionaires signed a letter demanding world leaders increase their taxes. It was part of the “Proud to Pay More” report. An accompanying survey found that 74% of millionaires in G20 countries supported higher taxes.
Here’s how Zucman proposed this 2% tax should be implemented. Go after their wealth. The ultra-wealthy have wealth, while we have income. The goal of this 2% tax is for those who hide their wealth elsewhere away from the prying eyes of the tax system. This is the target, and the goal is to prevent and discourage people from downplaying their wealth.
While the challenge will be participation, countries can take a cue from the multinational minimum tax agreement. In that, countries can overtax companies from countries that haven’t signed on. This encourages them to join in. So, if one country refuses to tax the super-rich who live there, another can tax them on their behalf. The idea that billionaires should pay a minimum amount of income tax shouldn’t be considered a radical idea.
COUNTERVIEW: A lot of hurdles
A global minimum tax on billionaires would be more complicated to implement than the one agreed upon for companies. Multinational companies are present in multiple countries. It’s easier to determine which governments need to demand tax payments. Billionaires are mobile. It makes it less clear which authorities would need to tap their wealth. Practically speaking, taxing in another country’s jurisdiction can cause some strife.
Another point to note is that people pay more taxes than companies, like income tax, capital gains tax, and contributions to social security. Bringing all those under one umbrella, especially if they’re in another country, will be hard to do. In essence, what Zucman proposed is a form of wealth tax. It’s likely to have mixed results. Take the USA, for example. Earlier this year, President Joe Biden proposed a 25% minimum tax on Americans with assets worth over $100 million. What happens when a person’s investment value declines?
The goal to increase tax equity is also tricky. Some low-income countries have tried with mixed results. In Uganda, the tax authority set up its first office dedicated to high-net-worth individuals. It merged shareholders’ records and property registries to income tax data. It didn’t result in additional revenue. Other countries have repealed direct wealth taxes because they scare off the wealthy and hinder foreign investments.
Critics of such billionaire tax policies have long argued they will discourage wealth accumulation, which can be seen as a driver of economic growth. Remember, Zucman wants to go after their wealth, not income. That’s not easy to ascertain. It can seem arbitrary. Wealth can include assets that need to be valued accurately.
Reference Links:
- What is global inequality? – Oxfam
- How has income inequality within countries evolved over the past century? – Our World in Data
- How are billionaires and corporate power intensifying global inequality? – Oxfam
- Economist Gabriel Zucman proposes that billionaires pay at least 2% in annual taxes on their fortunes – G20
- It’s Time to Tax the Billionaires – The New York Times
- Can fiscal policy reduce inequality in a globalized world? – World Bank
- A global tax on billionaires is on the agenda. Will it ever happen? – CNN
What is your opinion on this?
(Only subscribers can participate in polls)
a) Gabriel Zucman’s billionaire tax model can work.
b) Gabriel Zucman’s billionaire tax model won’t work.
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