As the fortunes of the super-rich rise, a proposed 2% annual tax could offer a corrective – and they will fight it tooth and nail.

The idea is simple. There are around 3,000 billionaires in the world and in recent years they have become increasingly rich. The demands placed on struggling governments by aging populations and the drive to achieve net-zero emissions are growing steadily. Instead of expecting voters already struggling to make ends meet to pay more, how about a wealth tax on Jeff Bezos, Elon Musk and others?

This is an idea that has obvious attractions. As Joe Biden has pointed out, American billionaires make their money in ways that are often taxed at lower rates than the normal wage income of American workers. Overwhelmingly, their wealth comes from the increasing value of their assets and they use tax loopholes and legal accounting measures to minimize the taxes they pay. Rich Americans pay an average tax rate on their income of just 8%. Biden thinks they should pay a minimum of 25%.

The Brazilian government has an even more ambitious proposal – an annual global tax levied at 2% on the wealth of the world’s billionaires. French economist Gabriel Zucman was asked to draw up a detailed plan for how a tax on billionaire wealth would work, ready for a meeting of G20 finance ministers in July.

Before the pandemic, Zucman’s idea of ​​a 2% annual tax on the wealth of billionaires would probably have been rejected out of hand, but Covid-19 and the energy shock caused by Russia’s invasion of Ukraine have left governments in developed countries and developing desperately below expectations. Of money. The poorest countries – which have suffered the most in the last five years – do not have the money to pay for much-needed investments in health or education, much less to combat global warming.

The number of billionaires nearly tripled in the 2010s and has continued to increase over the past four years, as the value of their assets – mainly shares and property – has increased due to the policies followed by central banks during the health emergency. Ultra-low interest rates and bond-buying programs known as quantitative easing meant money was cheap and plentiful. The result was stock market and real estate booms, and although people with much more modest incomes also saw the value of their homes and pension plans rise, those with high levels of wealth were the ones to begin with. who won the most. Even a 2% wealth tax would leave the rich much better off than they were a decade ago.

There is solid public support for a billion-dollar tax, which is no surprise. In general, people want more to be spent on public services and prefer that those who are better off pay the bill. The cost of living crisis has made people much more sensitive to the growing wealth gap between the super-rich and everyone else. As Zucman told me when I spoke to him in Washington last month, few people favor a system in which those with the greatest ability to pay taxes pay less.

He estimates that a 2% billionaire wealth tax would raise $250 billion a year, and while Western governments would inevitably keep most of the revenue for themselves, he says some of the money would go from the North to the West. global south.

That said, there is a long way to go before a billion-dollar wealth tax becomes a reality. One objection to wealth taxes is that they stifle innovation and growth. This argument would be more convincing if there was evidence that the massive increase in the wealth of the super-rich over the last decade has financed an investment boom. In fact, investment has historically been weak.

There are, however, many other issues, as with any new wealth tax. Wealth will need to be defined and an agreed mechanism created to assign a value to assets such as property. It will be important to avoid too many exemptions, because this will allow the very rich to transfer their wealth into new forms so that it cannot be touched.

Countries that have applied wealth taxes in the past have found that they collect relatively small amounts of revenue, in part because the very rich can move their money to tax havens. For the plan to work, international cooperation would be needed to prevent capital flight.

Given the many obstacles that would have to be overcome, there are tax experts, such as Richard Murphy, who consider that there are other, less glamorous, but ultimately more effective ways of taxing wealth. Brazil’s idea could easily go the way of the Robin Hood tax proposal, the idea of ​​a small tax on financial transactions, which clashed with the power of vested interests and never came to anything.

Likewise, billionaires will use all their influence to resist the idea that they should be taxed more heavily. In the 17th century, Louis XIV’s finance minister, Jean-Baptiste Colbert, famously said: “The art of taxation consists in plucking the goose so as to obtain the greatest possible quantity of feathers with the least possible quantity of whistles.” . Make no mistake: there will be a lot of protests if the super-rich fear that their wealth is seriously at risk.

This time, they may have more difficulty than in the past resisting pressure from thin governments and angry voters. Brazil’s plan may prove impractical. It may never see the light of day. But it put the issues of wealth and inequality on the agenda. And that’s a good thing.

Text by Larry Elliott, economics editor at The Guardian.


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