Calls for a wealth tax on the world’s super-rich are gaining renewed attention after US President Joe Biden said he would impose a new “billionaire tax” on the country’s richest if re-elected in November.
As Biden unveiled his 2025 budget proposals on Monday, he took aim at the super-rich and reiterated plans for a 25 percent tax on Americans with assets of more than $100 million.
“No billionaire should pay a lower tax rate than a teacher, a sanitation worker or a nurse,” he said during his State of the Union address last week.
The plans, previously laid out in the president’s 2024 budget, reignited a decades-long debate about how best to account for the wealth of the world’s richest.
This year, however, the issue has taken on even greater importance as governments around the world look for new ways to meet dwindling public finances and combat wealth inequality.
This is about the rich contributing more…the extremely rich contributing more and being proud to do so.
Phil White
retired business owner and member of Patriotic Millionaires
Last month, global finance ministers meeting for a G20 summit in Brazil said they were exploring plans for a global minimum tax on the world’s 3,000 billionaires to ensure the hypermobile super-rich 0.1% pay their fair share of society pay.
Such ideas are even supported by some of the richest people in the world. In early 2024, a growing network of so-called patriotic millionaires signed an open letter to world leaders calling for higher taxes on the rich. The 260 signatories included Disney heiress Abigail Disney and “Succession” star Brian Cox.
“This is about the rich contributing more to society, the extremely wealthy contributing more and being proud to do so,” Phil White, retired business owner and Patriotic Millionaires co-signer, told CNBC.
However, experts disagree about the effectiveness of a wealth tax and how feasible it is.
What is a wealth tax?
A wealth tax is a “broad” tax on the value of all – or most – assets of a wealthy individual or household, such as cash, property, vehicles, jewelry and other valuable items.
Unlike income tax, which is levied on annual income, and capital gains tax, which is levied on gains from the sale of an asset, a wealth tax is considered a more holistic method of accounting for an individual’s total wealth.
Such taxes were once prevalent in Europe, but at the turn of the 21st century their implementation declined due to doubts about their efficiency and a broader shift towards lower top tax rates.
Wealth taxes were once a significant source of tax revenue in Europe, although implementation declined at the turn of the 21st century
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As of 2024, Switzerland, Norway and Spain are among the few countries that impose some form of wealth tax. But more and more countries are joining this idea. Colombia has introduced a wealth tax in 2022, and the Scottish government is said to have announced proposals, among other proposals.
According to Arun Advani, associate professor of economics at the University of Warwick, the most effective wealth tax measures are those that are targeted and specific.
“If you want a wealth tax that is actually effective at the high end … you typically want to start with a fairly high threshold,” Advani said, pointing out that abandoned policies in the past were either too low or allowed for too many exemptions to provide sufficient tax revenue to generate.
A mass exodus of money
However, tax experts point out that even well-designed wealth tax policies can be difficult to enforce in practice, raising questions about which assets should be taxed and who should be responsible for assessing their value.
In fact, the possibility of behavioral change is one of the main arguments against wealth taxes. Critics point to the increased risk of wealth exodus among the highly mobile super-rich, including in tax havens, which they say undermines initial efforts to boost state coffers.
Entrepreneurs are forced to leave the country. This has a big impact on many people, including me, and is not sustainable.
Thor Kolstad
Founder and CEO of T. Kolstad Eiendom
“We’re certainly seeing individuals looking at other countries and asking, ‘Would it make sense to move if a wealth tax were introduced?'” said Christine Cairns, personal tax partner at PwC.
When Norway increased its wealth tax in 2022 for residents with assets exceeding 20 million Norwegian crowns ($1.8 million), many flocked to Switzerland. Entrepreneur Tord Kolstad was one of around 70 super-rich Norwegians who took the plunge in 2023.
“They doubled this taxation from one day to the next. For this reason, Norwegian entrepreneurs are forced to leave the country. This is a big impact for many people, including me, and is not sustainable in the long term,” Kolstad, founder and CEO of Norwegian real estate group T. Kolstad Eiendom, said.
The data suggests that wealth tax represents a very small share of total tax revenue in the countries where it is levied.
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Researchers disagree about the risks of capital flight due to a wealth tax. Some believe that cash outflows would be limited. But they also raise other concerns about the costs of such policies and their ability to redistribute wealth.
Data suggests that a wealth tax represents a very small proportion of total tax revenue in the countries where it is imposed. Often these incomes could not be increased significantly over time.
“There are higher costs on the tax authorities’ side because they definitely have to do additional assessments,” Advani said. “Another area of cost you might be concerned about is how this impacts investment incentives, for example.”
Tackling wealth inequality
Still, advocates argue that revenue from a wealth tax could be an important step toward addressing the wealth gap.
According to Oxfam, global wealth inequality has risen significantly in recent years, with the richest 1% capturing two-thirds of all wealth created since 2020. The poorest 50% of the world’s population currently owns just 2% of total net worth, while the richest 10% owns 76%. The richest 1% owns around two-thirds of that.
Under Biden’s proposals, a 25% tax on people earning more than $100 million would raise $500 billion over 10 years to help fund benefits such as child care and paid parental leave. That would raise the average tax rate for America’s 1,000 billionaires from 8.2%, bringing it in line with the 25% paid by average American workers, according to Biden.
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According to a 2023 report from the independent research laboratory EU Tax Observatory, which supports calls for a global wealth tax, even a 2% tax on the world’s 2,756 known billionaires could raise $250 billion a year. A separate Oxfam report in 2023 suggested that a 5% tax on the world’s multimillionaires and billionaires could raise $1.7 trillion annually – enough to lift 2 billion people out of poverty.
Groups like Patriotic Millionaires say this is part of their stated goals. A 2024 survey by Patriotic Millionaires found that more than half (58%) of millionaires from G20 countries support a 2% tax on wealth over $10 million. Three-quarters (74%) said they generally support higher taxes on the wealthy.
But some question whether such calls could be a way for the world’s richest to protect themselves from a more radical redistribution of wealth in the future.
“There are people who talk very seriously about the idea of libertarianism and say that there is a limit to the total amount of wealth that people should be allowed to own, and basically a 100 percent tax above that limit,” Advani said.
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2024-03-15 16:52:49
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