In today’s environment of increased poverty and wealth inequality, it is of uttermost importance to revise how we tax the rich — because the reality is that we are not taxing billionaires appropriately.
On October 22, 2023, the EU Tax Observatory, created in 2021 at the Paris School of Economics and led by the economist Gabriel Zucman, published the Global Tax Evasion Report 2024.
The report analysed the work of more than 100 researchers worldwide, who often partnered with tax administrations to investigate the modern-day taxation (and evasion) landscape.
Thrilled to publish the Global Tax Evasion Report 2024
A first-of-its-kind international research collaboration, building on the work of more than 100 researchers, coordinated by the @eutaxobservatory
With striking new findings
Thread 🧵 https://t.co/T2xlYfdrw2
— Gabriel Zucman (@gabriel_zucman) October 23, 2023
The analysis focused on the difficulties that globalisation posed for the taxation of multinational companies and individuals with staggeringly high net worths.
The types of practices identified by the report ranged from illegal practices — such as not reporting the income earned on foreign bank accounts — to grey-zone practices like shifting profits to shell companies lacking economic substance. In some cases, legal practices were also identified.
However, all contribute to increased inequality, reduced government revenues, and reduced taxes for the rich.
International Tax Evasion and Tax Competition: The Reports’ Findings
The report established six findings in the tax evasion and competition landscape.
The first finding concerns the positive impact of automatic exchanges of bank information. In the last ten years, foreign tax evasion has declined by threefold.
The percentage of the world GDP in offshore household financial wealth still stands at 10 %, but the report highlights that only 25% of it evades taxation.
Two factors contribute to the remaining tax evasion: The possibility of maintaining own financial assets that are not reported and the persistence of some assets not covered by the automatic exchange of bank information.
Until 2015 the equivalent of 9% of world GDP was held untaxed in tax havens
Today, thanks to the automatic exchange of bank information, this is down to 3% – 4% pic.twitter.com/FuSAsptpG0
— Gabriel Zucman (@gabriel_zucman) October 23, 2023
The second finding of the report shows that “a persistently large amount of profits is shifted to tax havens: $1 trillion in 2022,” which equates to 35% of all the profits made by multinational companies in all the countries save for where they have their headquarters.
The third finding highlights how the previously set minimum tax of 15% on multinational profits has been weakened by a series of loopholes that make it easier to evade taxation.
The 2021 agreement was exciting:
It was the first time that countries agreed on a minimum tax rate
The rate was low – 15% – but the promise was that it would be applied comprehensively
It promised to curb profit shifting to tax havens, which past efforts had failed to do pic.twitter.com/jKICn0xGsD
— Gabriel Zucman (@gabriel_zucman) October 23, 2023
The fourth finding displays an increasing number of aggressive tax competition affecting government revenues: as the report explains, “taxpayers attracted by one country reduce the tax base by the same amount in another, and global tax revenue collection falls,” increasing inequality.
The fifth — and perhaps most interesting finding — highlights that global billionaires have ridiculously low personal effective tax rates: Just between 0% and 0.5% of their wealth is being taxed.
Related articles: At “Virtual Davos” A Group of Billionaires Calls For a Wealth Tax | Taxing the Rich: 5% Tax Could Lift 2 Billion out of Poverty, Report Shows | The Huge Carbon Footprint of Billionaires
Considering all taxes paid at all levels of government beyond personal taxes, billionaires are effectively paying significantly lower taxes than all other people.
This is possible because, in many countries, billionaires can use “personal wealth-holding companies to avoid income tax.” This is one of the grey-zone situations, in between avoidance and evasion.
Finally, the Ugly.
The Ugly points to the lack of efforts so far to address the considerable tax deficit of billionaires
In countries where we have data, we see that billionaires pay much less taxes than ordinary citizens in proportion to their income pic.twitter.com/ZPwlqP2ZO6
— Gabriel Zucman (@gabriel_zucman) October 23, 2023
Finally, the sixth finding of the report shows that a global minimum tax of 2% on fewer than 3,000 billionaires’ wealth would generate almost $250 billion a year. The results are incredible, considering the number of billionaires and the relatively small tax percentage.
Why Putting a Tax on Billionaires’ Wealth Is Important
Overall, the report shows that the evasion issue can be addressed in multiple ways, such as reforming “the international agreement on minimum corporate taxation to implement a rate of 25% and remove the loopholes in it that foster tax competition,” or implementing a new mechanism to tax wealthy people who, after being long-term residents in a country, choose to move to a low-tax country.
Nobel Prize-winning economist Joseph Stiglitz commented on the report, saying that tax evasion and tax avoidance are “the result[s] of policy choices — or the failure to make policy choices that act to stop it.”
Taxing billionaires is a matter of justice: A small fraction of a billionaire’s wealth could help fund important state services, such as education and infrastructure. It could also help countries recover after oncoming crises like future pandemics or extreme weather events.
“So many people struggle to make ends meet yet pay the taxes their governments ask of them,” Stiglitz said. “We need to make sure those at the top of the income ladder who certainly have the financial means don’t wriggle out of them.”
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — In the Featured Photo: White yacht. Featured Photo Credit: Jordan Cormack.
