Leaders worldwide should institute a global tax minimum on billionaires — which could raise $250 billion annually — as part of an effort to cut down on tax evasion, the EU Tax Observatory indicated in a new report.
The proposal is to institute a global minimum tax on billionaires, equal to 2% of their wealth, which would raise $250 billion from less than 3,000 individuals, per the report.
“If citizens don’t believe that everyone is paying their fair share of taxes — and especially if they see the rich and rich corporations not paying their fair share — then they will begin to reject taxation. Why should they hand over their hard-earned money when the wealthy don’t? This glaring tax disparity undermines the proper functioning of our democracy; it deepens inequality, weakens trust in our institutions, and erodes the social contract,” the report reads.
Global billionaires have effective tax rates equivalent to 0% to 0.5% of their wealth, largely due to the frequent use of shell companies to avoid income taxation, according to the report.
Global Billionaire Tax: Is It Realistic?
Some experts noted that while this is an interesting proposal, it will almost certainly face challenges in implementation.
“First, countries will have a hard time resisting the urge to ‘cheat’ in the sense of providing some favorable tax treatment to billionaires,” said Dr. Aleksandar Tomic, associate dean for strategy, innovation and technology at the Boston College’s Woods College of Advancing Studies.
“Second, what is being discussed is a tax on wealth more so than on income. The problem here is that billionaires’ wealth is not necessarily liquid at all, and definitely not at current valuation,” he added.
Tomic said the bulk of tech CEOs and founders’ wealth is in the form of their company’s stocks.
“If they had to sell a significant amount of stock to pay the tax, the price of the stock would be affected, negatively impacting other people such as small investors, pension funds, etc.,” he added.
All in all, for Tomic this proposal is “an interesting idea and it will become more germane as countries face higher costs of debt service and as countries will have to look to increased tax revenues to finance fiscal deficits.”
“However, again, I think it will be difficult to keep countries from competing with one another once these taxes are announced,” he concluded.
A Lack of Economic Upside?
Yet, some experts argued that there is very little economic upside to the EU billionaire tax study.
“The proposal is based on the conflating of a person’s annual income — a conventional unit of tax assessment — with a much broader and fluid concept of wealth,” said Phil Magness, senior research faculty with the American Institute for Economic Research.
According to Magness, contrary to the EU study’s claims, the current tax systems in the United States and most European countries are overwhelmingly progressive.
“Wealth taxes are notoriously unreliable though. Most wealth taxes attempt to levy a fee upon the unrealized gains in capital assets. Since the estimated value of these assets fluctuates constantly, they are difficult to even estimate let alone collect,” he said, adding that such taxes also create huge distortions on stock and real estate markets while yielding comparatively little revenue.
This latest EU Tax Observatory proposal comes on the heels of similar ones. For example, President Joe Biden’s 2024 fiscal budget, released in March, includes a 25% minimum tax on the wealthiest 0.01%, according to a White House fact sheet. Yet, as CNN noted: “That proposal has since fallen by the wayside with lawmakers in Washington preoccupied with government shutdown threats and looming funding deadlines.”
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