By: Moritz Odersky
How long does it take to earn one billion dollars? Let’s say you’re in the top 1% earners in the United States, earning $312,000 per year. Assuming you pay no taxes and save every cent, you would accumulate one million dollars in just over three years. Still, it would take another 3203 years to reach one billion dollars. Nonetheless, in the world, there are currently around 2800 billionaires, and they have a disproportionate impact on our lives and the planet.
How do Billionaires affect our lives?
1. They wield exorbitant political power through donations and by owning media companies.
2. Billionaires commonly have several thousand times the personal carbon footprint of average citizens in high-income countries and their investments are responsible for greenhouse emissions on the scale of medium-sized countries.
3. Through various legal arrangements billionaires manage to effectively pay a lower tax rate than most other people which undermines the idea of tax progressivity, that richer people get taxed a higher proportion.
In recent years, billionaires’ wealth has been growing at a record pace, raising the question: Can we find an effective way to tax billionaires and halt the exploding concentration of wealth at the top?
Rising Inequality
Billionaires are the tip of the iceberg of a greater phenomenon: increasing wealth inequality. While inequality had decreased for centuries, political decisions have reversed this trend in past decades. Today, the top 1% in the world own more than 37% of the global wealth, while the bottom 50% hold only 2%.
In the 1980s, Financial markets were deregulated and barriers to moving money internationally were reduced. Simultaneously, countries failed to coordinate on financial regulation or tax policies. This enabled the super-wealthy to shift their assets to low- or no-tax countries, sparking countries to compete to attract the wealthy by offering the lowest tax rates.
As a result, many countries lowered or abolished their wealth taxes. In 1995, 12 OECD countries still levied a net wealth tax; today, this number has fallen to four (Colombia, Norway, Spain, and Switzerland). Next to not paying any wealth taxes, the super-wealthy also pay a lower effective income tax rate than much of the population. One of their core tricks is to not pay out any income from their business and instead finance consumption through loans they can take out at very low interest rates.
Changing tide?
While these developments were largely uncontested for many years, public resistance has formed recently. A 2024 poll conducted in 17 of the G20 countries has shown that on average 68% back the introduction of a wealth tax. However, until now politicians have hesitated to act. For example, in the UK, the closing of tax loopholes for the ultra wealthy was opposed, as it was feared they would take their money and leave the country. While recent evidence suggests that this worry is often exaggerated, the possibility would be excluded if countries manage to jointly introduce a global wealth tax.
It Can be Done
Such large-scale international coordination still seemed utopian just a few years ago, until a recent landmark victory: The Global Minimum Corporate Tax. In 2021, 136 countries agreed to introduce a minimum corporate tax rate of 15% for multinational firms.
The problem was similar to the one of the super-wealthy: Multinationals are able to shift their profits to low-tax constituencies and thereby pay a lower effective tax rate than smaller firms, just like the super-wealthy pay lower effective tax rates than the rest. While the minimum only applies to large multinationals and smaller enterprises often still pay higher rates, the agreement is a milestone in international tax cooperation.
The Proposal
Under the current Brazilian G20 presidency, a minimum wealth tax on billionaires, is next on the agenda. A report by Gabriel Zucman, head of the EU Tax Observatory research centre, outlines the design of a 2% minimum tax on billionaire’s wealth. Billionaires will only be taxed if they pay below 2% of their wealth as income taxes. This way the tax serves as an income tax replacement. The annual revenue from this tax is estimated at a whopping $200-250 billion.
Just the Beginning
Until recently thought unfeasible, shifting political tides have now brought a global billionaire tax within reach. In fact, several governments, including Brazis and France’s, are already publicly supporting it. Nonetheless, this can only be the beginning, as the 2% tax would not stop the world’s wealthiest from accumulating wealth much faster than the average person globally.
Still, although the current proposal will only slow down the exploding wealth inequality, and not reverse it, it is a step in the right direction, as it sets an important precedent for international cooperation.
At the same time, the $200-250 billion in tax revenues will provide a vital lifeline to cash-strapped governments. It can help fill the funding gaps in healthcare and education, and help finance responses to the climate crisis.
Ultimately, whilst the global billionaire tax has not been enacted yet, the fact that this proposal has even come this far is a testament to the power that collective pressure from civil society, media, and academics can have in pushing governments to prioritise the average citizen’s wellbeing.
