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IT’S TIME TO TAX THE BILLIONAIRES  
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Gabriel Zucman
May 3, 2024
New York Times
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_ The idea that billionaires should pay a minimum amount of income
tax is not a radical idea. A global coordinated minimum tax on the
superrich will not fix capitalism. But it is a necessary first step. _


For the first time in the history of the United States, billionaires
had a lower effective tax rate than working-class Americans, source:
Emmanuel Saez and Gabriel Zucman

 

Until recently, it was hard to know just how good the superrich are at
avoiding taxes. Public statistics are oddly quiet about their
contributions to government coffers, a topic of legitimate interest in
democratic societies.

Over the past few years, I and other scholars have published studies
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fix that problem. While we still have data for only a handful of
countries, we’ve found that the ultrawealthy consistently avoid
paying their fair share in taxes. In the Netherlands, for instance,
the average taxpayer in 2016 gave 45 percent of earnings to the
government, while billionaires paid just 17 percent.

Why do the world’s most fortunate people pay among the least in
taxes, relative to the amount of money they make?

The simple answer is that while most of us live off our salaries,
tycoons like Jeff Bezos live off their wealth. In 2019, when Mr. Bezos
was still Amazon’s chief executive, he took home an annual salary
of just $81,840
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But he owns roughly 10 
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of the company
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which made a profit of $30 billion in 2023.

If Amazon gave its profits back to shareholders as dividends, which
are subject to income tax, Mr. Bezos would face a hefty tax bill. But
Amazon does not pay dividends to its shareholders. Neither does
Berkshire Hathaway or Tesla. Instead, the companies keep their profits
and reinvest them, making their shareholders even wealthier.

Unless Mr. Bezos, Warren Buffett or Elon Musk sell their stock, their
taxable income is relatively minuscule. But they can still make
eye-popping purchases by borrowing against their assets. Mr. Musk, for
example, used his shares in Tesla as collateral to rustle up around
$13 billion in tax-free loans to put toward his acquisition of
Twitter.

Outside the United States, avoiding taxation can be even easier.

Take Bernard Arnault, the wealthiest person
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the world. Mr. Arnault’s shares in LVMH, the luxury goods
conglomerate, officially belong
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holding companies that he controls. In 2023, Mr. Arnault’s holdings
received about $3 billion in dividends from LVMH. France — like
other European countries — barely taxes
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dividends, because on paper they are received by companies. Yet Mr.
Arnault can spend the money almost as if it were deposited directly
into his bank account, so long as he works through other incorporated
entities — on philanthropy
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for instance, or to keep his megayacht
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more companies
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Historically, the rich had to pay hefty taxes on corporate profits,
the main source of their income. And the wealth they passed on to
their heirs was subject to the estate tax. But both taxes have been
gutted in recent decades. In 2018, the United States cut its maximum
corporate tax rate to 21 percent from 35 percent. And the estate tax
has almost disappeared in America. Relative to the wealth of U.S.
households, it generates [[link removed]] only a
quarter of the tax revenues it raised in the 1970s.

So what should be done?

One obstacle to taxing the very rich is the risk they may move to
low-tax countries. In Europe, some billionaires who built their
fortune in France, Sweden or Germany have established residency in
Switzerland
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where they pay a fraction of what they would owe in their home
country. Although few of the ultrawealthy actually move their homes
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the possibility that they might has been a boogeyman for would-be tax
reformers.

There is a way to make tax dodging less attractive: a global minimum
tax. In 2021, more than 130 countries agreed
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apply a minimum tax rate of 15 percent on the profits of large
multinational companies. So no matter where a company parks its
profits, it still has to pay at least a baseline amount of tax under
the agreement.

In February, I was invited to a meeting of Group of 20 finance
ministers to present a proposal
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another coordinated minimum tax — this one not on corporations, but
on billionaires. The idea is simple. Let’s agree that billionaires
should pay income taxes equivalent to a small portion — say, 2
percent — of their wealth each year. Someone like Bernard Arnault,
who is worth about $210 billion, would have to pay an additional tax
equal to roughly $4.2 billion if he pays no income tax. In total, the
proposal would allow countries to collect an estimated $250 billion
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additional tax revenue per year, which is even more than what the
global minimum tax on corporations is expected
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add.

Critics might say that this is a wealth tax, the constitutionality of
which is debated in the United States. In reality, the proposal stays
firmly in the realm of income taxation. Billionaires who already pay
the baseline amount of income tax would have no extra tax to pay. The
goal is that only those who dial down their income to dodge the income
tax would be affected.

Critics also claim that a minimum tax would be too hard to apply
because wealth is difficult to value. This fear is overblown.
According to my research, about 60 percent of U.S. billionaires’
wealth is in stocks of publicly traded companies. The rest is mostly
ownership stakes in private businesses, which can be assigned a
monetary value by looking at how the market values similar firms.

One challenge to making a minimum tax work is ensuring broad
participation. In the multinational minimum tax agreement,
participating countries are allowed
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overtax companies from nations that haven’t signed on. This
incentivizes every country to join the agreement. The same mechanism
should be used for billionaires. For example, if Switzerland refuses
to tax the superrich who live there, other countries could tax them on
its behalf.

We are already seeing some movement on the issue. Countries such as
Brazil, which is chairing the Group of 20 summit this year and has
shown extraordinary leadership on the issue, and France
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Germany, South Africa and Spain have recently expressed support
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a minimum tax on billionaires. In the United States, President
Biden has proposed
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billionaire tax that shares the same objectives.

To be clear, this proposal wouldn’t increase taxes for doctors,
lawyers, small-business owners or the rest of the world’s upper
middle class. I’m talking about asking a very small number of
stratospherically wealthy individuals — about 3,000 people
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to give a relatively tiny bit of their profits back to the governments
that fund their employees’ educations and health care and allow
their businesses to operate and thrive.

The idea that billionaires should pay a minimum amount of income tax
is not a radical idea. What is radical is continuing to allow the
wealthiest people in the world to pay a smaller percentage in income
tax than nearly everybody else. In liberal democracies, a wave of
political sentiment is building, focused on rooting out the inequality
that corrodes societies. A coordinated minimum tax on the superrich
will not fix capitalism. But it is a necessary first step.

* Billionaires
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* economic inequality
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* tax reform
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* Corporate taxes
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