Billionaires
The EU Tax Observatory has proposed that governments initiate a new phase in the global crackdown on tax evasion by implementing a global minimum tax on billionaires, potentially yielding $250 billion annually.
This amount, if imposed, would represent just 2% of the nearly $13 trillion in wealth collectively held by the world’s 2,700 billionaires, according to research conducted by the group based at the Paris School of Economics.
The Tax Observatory’s 2024 Global Tax Evasion Report highlights that billionaires often pay significantly lower effective personal taxes compared to individuals with more modest means. This discrepancy is due to their ability to shield their wealth within shell companies, thus avoiding income tax.
Gabriel Zucman, the director of the observatory, expressed concerns about this practice, stating, “In our view, this is difficult to justify because it risks undermining the sustainability of tax systems and the social acceptability of taxation.”
The report reveals that the personal tax paid by billionaires in the United States is estimated to be approximately 0.5%, and in some high-tax countries like France, it may even be as low as zero.
In various countries, rising wealth inequality is driving calls for the wealthiest individuals to contribute a larger share of the tax burden. This is particularly important as public finances struggle to support aging populations, finance climate transition initiatives, and manage legacy debts from the COVID pandemic.
While U.S. President Joe Biden had included plans for a 25% minimum tax on the wealthiest 0.01% in his 2024 budget, the proposal has faced challenges in Washington due to government shutdown threats and pending funding deadlines.
Although a coordinated international effort to tax billionaires may take time, the EU Tax Observatory points to the successes achieved in ending bank secrecy and curtailing profit-shifting by multinational corporations to low-tax jurisdictions as precedents.
The automatic sharing of account information initiated in 2018 has significantly reduced wealth held in offshore tax havens, according to the observatory. Additionally, a 2021 agreement among 140 countries established a global minimum corporate tax rate of 15%, limiting the ability of multinationals to reduce their tax liability by booking profits in low-tax jurisdictions.
The observatory emphasized the potential for a “coalition of willing countries” to lead the way in implementing a minimum tax on billionaires if broad international support is lacking.
Despite the progress made in ending competition between countries regarding tax rates, opportunities for reducing tax liabilities still exist, such as wealthy individuals increasingly investing in real estate instead of offshore accounts and companies exploiting loopholes in the 15% corporate tax minimum.
Governments are also vying for investment through subsidies, even though this is less detrimental to their tax bases than competing solely on low tax rates, the observatory noted.
