How to Fix Tax Inequality

There is a problem in our tax systems, which is that the very rich have lower effective tax rates than the rest of the population. They pay less as a fraction of their income than the working class, the middle class, the upper-middle class. And that’s not sustainable.

We have a number of studies that show that in countries like France, like the Netherlands, the U.S., Italy, Spain, in all cases, you see that when you take into account all taxes at all levels of government, individual income taxes, but also corporate taxes, VAT, everything in a country like France, for instance, all the groups of the population pay around 50% of their income in tax, with one big exception, which is billionaires who pay only 25% of their income in tax.

How is that possible? It’s because when you’re very rich, it’s, easy to structure your wealth such that this wealth is not going to generate taxable income. And we saw that for instance, in 2021, in the context of, revelations in the US by the US media ProPublica, about the taxes paid by US billionaires. A number of years you have people like Elon Musk or Jeff Bezos paying zero. In some years, Jeff Bezos pays so little that he claims family benefits and he receives a check from the US tax authority because supposedly he’s poor when, in fact, he’s very rich.

We show all of that in the Global Tax Evasion Report 2024, that was released by the EU Tax Observatory. We compiled all the studies and we established the facts very clearly: there is a problem with the sustainability of our tax systems. Those individuals who have the highest ability to pay taxes end up paying the least tax as a fraction of their income.

So what do we do? How do we fix that problem? The most effective way to address that issue is by forcing billionaires to pay a certain minimum tax each year. And the question is minimum as a fraction of what? And the easiest solution is to base that minimum tax out of their wealth. So what we propose very concretely is that each year, billionaires should pay at least the equivalent of 2% of their wealth in tax.

Many of them pay zero today. So that would be like an extra wealth tax of 2%. Some of them pay already in income tax the equivalent of 2% of their wealth. So for them, nothing more would be owed. But we think that this principle, that the very wealthiest people in society should be subject to some floor is really important.

We’re doing that already for multinational companies. There is an international agreement that says that multinational companies have to pay at least 15% of their profits in taxes each year. Now we need to reach an agreement like that for global billionaires. There are very few global billionaires, about 3,000, but they have a lot of wealth.

You know, that’s called wealth inequality. They have about $13 trillion in wealth. So that with this minimum tax that I describe – 2% of their wealth each year – that would generate globally about $250 billion in additional tax revenue. And you know, what does it mean, $250 billion. Is it a lot or is it very little? How do we know? Well, think of this: according to the best estimates that we have, developing countries need about $500 billion annually in additional tax revenue to face the challenges of climate change.

And so what I’m saying is that with just a tiny tax, you know, 0.02 out of any euro or dollar for billionaires, you can reach half of that, you can generate about half of what’s needed globally by developing countries for climate change. So there’s no reason to wait. Ten years ago, most experts thought that a minimum tax on multinational companies was impossible.

There would be no way to convince countries to agree on that. And now it’s a reality. We know it’s possible. And, the goal for the years to come should be to put pressure on governments to do the same thing for the very rich globally.