Global minimum tax on billionaires could generate $250 billion annually, finds EU Study

The EU Tax Observatory has recommended that governments initiate a global minimum tax on billionaires as part of international efforts to combat tax evasion, as per a Reuters report. This measure could potentially yield $250 billion per year, it added. 

This suggested tax would amount to just 2 percent of the collective $13 trillion in wealth owned by the world's 2,700 billionaires, as reported by the research group located at the Paris School of Economics.

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Big Disparities

At present, billionaires often pay substantially less in personal taxes compared to individuals with more modest incomes. They achieve this by placing their wealth in shell companies, which shield them from income tax, as highlighted in the 2024 Global Tax Evasion Report from the group.

The EU Tax Observatory's director, Gabriel Zucman, expressed concerns about the impact of such practices on tax systems and public acceptance of taxation, stating that it is difficult to justify these disparities.

In the United States, billionaires' personal tax is estimated to be close to 0.5 percent, and it can even be as low as zero in high-tax countries such as France, according to the Observatory's estimates.

Calls to impose a greater tax burden on the wealthiest citizens are growing due to increasing wealth inequality and the need for public finances to support aging populations, address climate transition, and manage COVID-related debt.

Tax Parity

US President Joe Biden included plans for a 25 percent minimum tax on the top 0.01 percent of income earners in his 2024 budget. However, this proposal has faced delays and uncertainties in the face of government shutdown threats and looming funding deadlines in Washington.

And although the establishment of a coordinated international approach to taxing billionaires could take years, the EU Tax Observatory cited successful instances where governments significantly reduced bank secrecy and curbed opportunities for multinational companies to shift profits to low-tax jurisdictions.

The automatic sharing of account information launched in 2018 has led to a threefold reduction in wealth held in offshore tax havens, as estimated by the observatory.

A 2021 agreement involving 140 countries will impose a global 15 percent minimum corporate tax rate, limiting the ability of multinationals to lower their tax liabilities by booking profits in low-tax nations, effective from the following year.

Zucman suggested that, building on these achievements, the logical progression is to extend a similar approach to billionaires, not only targeting multinational corporations.

What's next?

In the absence of a broad international consensus, Zucman proposed that a "coalition of willing countries" could independently lead the way in implementing a minimum tax on billionaires.

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Despite progress in ending the competition among countries for low tax rates, the report noted that there are still opportunities for tax reduction, such as the wealthy shifting their wealth into real estate and companies exploiting loopholes in the 15 percent corporate tax minimum.

Governments are increasingly vying for investment through subsidies, which, while less detrimental to their tax bases than competing solely on low tax rates, remains a challenge, according to the Observatory.