Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The global corporate tax reform that came into effect this year was something of a miracle. Less than a decade ago, few would have thought it realistic that most countries in the world would ever agree to close loopholes for corporate taxation, institute a global minimum rate, and decide how to apportion the new tax take — set to be more than $200bn a year — among themselves.
Yet here we are. Some parts of the global corporate tax reform are still to be ratified, but the minimum level is now being widely implemented. And if one miracle is possible, why not two? That is how we should look at recent stirrings of something similar: a multilateral effort to overhaul the flawed system for taxing super-rich individuals.
In February, the economist Gabriel Zucman — a scourge of wealthy tax optimisers everywhere — presented G20 finance ministers with a proposal for a global billionaire’s tax, at the request of Brazil. Brasília, which currently holds the group’s presidency, is keen to move to the next stage of the global tax agenda, which could be to close the loopholes that allow the world’s richest individuals to pay very little tax.
It was the first time the topic had been raised at a G20 meeting, Zucman told me, yet “most ministers who spoke in São Paulo praised Brazil for raising it”. He observed that the wealth of the very richest had grown by 7-8 per cent annually in recent decades — on top of inflation — compared to the 2-3 per cent growth rate of average wealth.
Zucman proposes an annual levy of 2 per cent of the wealth of the world’s roughly 3,000 dollar billionaires. It is not quite a wealth tax as much as a hybrid between a wealth and income tax, premised on the idea that the ultra-rich find it easy to define their revenues out of any taxable categories (by keeping gains inside holding companies, for example).
The goal is to cut through the thickets of legal structures that let the super-rich minimise taxable income under national codes, by positing that these should not give rise to less income tax than 2 per cent of their net worth. Any income and wealth taxes actually paid would be deducted. This would still leave billionaires pulling away from the rest of us.
It may sound pie-in-the-sky — impossibly complicated and politically dead on arrival. But so, initially, did the global corporate tax reform, whose technical challenges were overcome and whose politics took surprising and positive turns. Recall that the political yeoman’s work was done in concert between France and a US led by Donald Trump, surely one of its least multilaterally inclined presidents ever.
Already, there have been notable expressions of political support. France’s finance minister has endorsed the idea, for the G20 and also at the European level. Ministers from not just Brazil, but South Africa, Spain and Germany have written in favour of it. What about the US? Zucman points out that Joe Biden’s latest budget features a billionaire’s tax that is “very similar in spirit” to his own proposal.
My own conversations convince me a second Biden administration would want to double down on its landmark achievements on infrastructure and industrial policy, and this is surely an attractive way to fund that.
That point holds even more strongly in Europe. The EU’s central political economy challenge in the financial sphere is how to square a recognised need for much more investment in defence, infrastructure and green industry with strict national fiscal rules and resistance to more common borrowing by the bloc as a whole. A co-ordinated and hence flight-proof wealth tax will surely be hard to resist, in a bloc where the right to move freely is treaty-guaranteed.
Zucman and his collaborators estimate in their most recent Tax Evasion Report that their proposal would raise about €40bn annually across Europe. Not all of that is in the EU, but for comparison that amount would cover nearly a quarter of the bloc’s budgeted spending for 2024. And this is only from billionaires. Once in place, it is hard to see why fiscally squeezed politicians would decide to spare those with merely hundreds or even scores of billions.
In retrospect, the “profit-shifting” that allowed the severe under-taxation of multinational companies was doomed by two causes: the extreme pressure on public budgets after the global financial crisis and the popular revulsion at corporations not paying their fair share. Both conditions are amply in place today with respect to ultra-rich individuals. A global wealth tax could arrive sooner than you think.
