Unveiling the Hidden Truth: How Billionaires Evade Taxes and a 2% Global Levy Could Curb It
Governments urged to implement a global minimum tax on billionaires by the EU Tax Observatory, potentially generating $250 billion yearly to combat tax evasion
The EU Tax Observatory proposed that governments should introduce a worldwide minimum tax on billionaires to combat tax evasion. This measure has the potential to generate $250 billion each year. The research group, situated at the Paris School of Economics, estimated that this amount would account for just 2% of the total wealth possessed by the 2,700 billionaires across the globe, which amounts to approximately $13 trillion.
According to the 2024 Global Tax Evasion Report, billionaires pay significantly less personal tax compared to individuals with lower income due to their ability to shield their wealth in shell companies, thereby avoiding income tax. Gabriel Zucman, the director of the observatory, expressed concern that this practices undermines the integrity of tax systems and the public's acceptance of taxation.
Billionaires in the United States are estimated to pay a personal tax rate of around 0.5%, while in France, a high-tax country, it can be as low as zero, according to the Observatory's estimations. This increase in wealth inequality has led to demands for the wealthiest individuals to shoulder a larger share of the tax burden. As public finances face challenges from aging populations, the need for significant funding during the energy transition, and the accumulated debt from the Covid pandemic, these calls for fairer taxation have intensified.
US President Joe Biden's 2024 budget initially proposed a 25% minimum tax on the wealthiest 0.01% individuals. However, this plan has been side-lined as lawmakers in Washington are currently prioritizing government shutdown threats and impending funding deadlines. While it may take several years for a global effort to tax billionaires to materialize, the Observatory highlighted the achievements of governments in eliminating bank secrecy and limiting the ability of multinational corporations to evade taxes by channeling profits into low-tax nations.
The observatory estimated that the automatic sharing of account information, introduced in 2018, has significantly decreased the wealth stored in offshore tax havens by three times.
Starting next year, a global agreement among 140 countries will impose a corporate tax floor of 15%, limiting the ability of multinational corporations to minimize their tax obligations by channeling profits into low-tax jurisdictions.
"Previously deemed unattainable, we now have evidence that it is indeed achievable," stated Zucman. "The next logical stride would be to extend this approach to billionaires, rather than solely focusing on multinational corporations."
In the absence of a widespread global initiative for imposing a minimum tax on billionaires, Zucman proposed that a "coalition of countries willing to act" could take the initiative unilaterally.
According to the report, while the end of banking secrecy and the implementation of the corporate minimum tax have diminished the competition between countries in terms of tax rates, there are still ample opportunities to lower tax payments. For instance, the wealthy are now more inclined to invest their wealth in real estate rather than offshore accounts, and companies can take advantage of loopholes in the 15% minimum corporate tax.
Meanwhile, governments are increasingly competing for investment through subsidies rather than competing only on low tax rates, the Observatory said.
