Calls for a wealth tax on the world’s super-rich have gained renewed attention after US President Joe Biden said he would impose a new “billionaire tax” on America’s richest people if re-elected in November.
Biden took aim at the super-rich on Monday as he outlined his 2025 budget proposal and reiterated his plan to impose a 25% tax on Americans with wealth above $100 million.
“No billionaire should have to pay a lower tax rate than a teacher, a sanitation worker, a nurse,” he said in his State of the Union address last week.
The plans were previously outlined in a statement from the President Budget 2024reigniting a decades-long debate over how best to account for the wealth of the world’s richest people.
However, the issue has taken on new significance this year as governments around the world look for new ways to curb shrinking public finances and tackle wealth inequality.
It’s about the rich giving more…the extremely rich giving more and being proud of it.
Phil White
Retired business owner and member of Patriotic Millionaires
Last month, global finance ministers said at the G20 summit in Brazil that they Discovery plan Implement the world’s lowest tax rate on the world’s 3,000 billionaires to ensure that the 0.1% of the super-rich pay their fair share to society.
These ideas are even supported by some of the world’s wealthiest people. In early 2024, a growing network of so-called patriotic millionaires signed a open envelope Call to world leaders for higher taxes on the rich.between 260 signatories It’s Disney heiress Abigail Disney and Succession star Brian Cox.
Phil White, a retired business owner and Patriot Millionaire co-signer, told CNBC: “It’s about the rich doing more for society, the extremely wealthy doing more for society and being proud of it. .”
But experts are divided over the effectiveness of a wealth tax and how realistic it would be in practice.
What is a wealth tax?
A wealth tax is a “broad-based” tax that taxes a wealthy individual or family on the value of all or most of their assets (such as cash, property, vehicles, jewelry and other valuables).
Unlike income tax, which is based on annual income, and capital gains tax, which is levied on profits from the sale of assets, a wealth tax is seen as a more comprehensive way of calculating an individual’s total wealth.
Such taxes were once prevalent in Europe, but implementation declined at the turn of the 21st century amid questions about their efficiency and a broader shift toward lower high-end tax rates.
Wealth taxes were once an important source of tax revenue in Europe, although implementation declined at the turn of the twentieth century
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As of 2024, Switzerland, Norway, and Spain are among the few countries with some form of wealth tax. But more and more countries are starting to embrace the idea. Colombia will introduce a wealth tax in 2022, and the Scottish government and others have also made relevant suggestions.
Arun Advani, associate professor of economics at the University of Warwick, said the most effective wealth tax policies are those that are targeted and specific.
“If you want a wealth tax to actually be effective at the top end… you generally want to start with a pretty high threshold,” Advani said, noting that historically abandoned policies either taxed too low or allowed too many exemptions. Generate enough tax revenue.
massive capital outflows
However, tax experts note that even a well-designed wealth tax policy will be difficult to implement in practice, as questions arise about which assets should be taxed and who should be responsible for assessing their value.
In fact, the potential for behavioral change is one of the top arguments against a wealth tax. Critics point to the increased risk of outflows of highly mobile super-rich wealth, including to tax havens, which they say undermines initial efforts to bolster government coffers.
Business owners were forced to leave the country. This has a huge impact on a lot of people (including me) and is unsustainable.
Thor Kolstad
T. Kolstad Eiendom Founder and CEO
“We’re certainly seeing people looking at other countries and wondering if there’s a wealth tax, are there benefits to moving?” said Christine Cairns, personal tax partner at PwC.
In 2022, Norway raised wealth taxes on residents with assets of more than 20 million Norwegian kroner ($1.8 million), and many people flocked to Switzerland. Entrepreneur Tord Kolstad is one of about 70 Norwegian super-rich to relocate in 2023.
“Their taxes are doubling day after day. That’s why Norwegian business owners are forced to leave the country. This has a huge impact on a lot of people, including me, and in the long run it’s It’s unsustainable,” said Kolstad, founder and CEO of Norwegian real estate group T. Kolstad Eiendom.
Data show that in countries where wealth taxes are levied, wealth taxes account for only a small portion of total tax revenue.
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Researchers are divided over the risk of capital flight from a wealth tax, with some arguing cash outflows would be limited. But they do raise other concerns about the cost of such a policy and its ability to redistribute wealth.
The data show that wealth taxes only account for a very large proportion. Small proportion Total tax for the applicable country. Often these revenues fail to increase significantly over time.
“The cost is higher on the tax authorities’ side because they definitely need to do additional valuations,” Advani said. “Another area of cost that you might be concerned about is the impact it has on investment incentives.”
Addressing wealth inequality
Still, supporters argue that the revenue generated by a wealth tax could mark an important step in closing the gap between rich and poor.
Global wealth inequality has increased significantly in recent years, with the richest 1% accounting for two-thirds of the new wealth since 2020. according to to Oxfam. The poorest 50% of the world’s population now own only 2% total net wealth, while the richest 10% hold 76%.Among them, the richest 1% own approx. Two thirds.
Under Biden’s proposal, a 25% tax on those with more than $100 million in assets would raise $500 billion over 10 years to fund benefits such as child care and paid parental leave.This would raise the average tax rate for 1,000 Americans Billionaires from 8.2% and make it conform to 25% paid Biden said the income of the average American worker.
According to one study, even a 2% tax on the world’s 2,756 high-profile billionaires could raise $250 billion annually. 2023 report From independent research lab EU Tax Observatory, which backs calls for a global wealth tax. independent Oxfam report A proposed 5% tax on the world’s millionaires and billionaires in 2023 could raise $1.7 trillion per year – enough to lift 2 billion people out of poverty.
Groups like Patriot Millionaires say this is part of their stated goals. A 2024 polls Patriotic Millionaires found that more than half (58%) of millionaires in G20 countries support a 2% tax on wealth above $10 million. Three-quarters (74%) say they generally support higher taxes on the wealthy.
However, some question whether such calls could be a way for the world’s richest people to guard against more radical wealth redistribution in the future.
“You know, there are some people who talk very seriously about the idea of libertarianism and say there should be a limit on the total wealth that people can have and essentially a 100 percent tax above that level,” Advani said.
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