In a significant move aimed at addressing global income inequality, a proposal for an internationally coordinated minimum tax on ultra-high-net-worth individuals has garnered attention at the G20 international taxation symposium held in Brasília.
Modern tax systems fail to tax very wealthy individuals adequately, the report found, because they are taxed mostly on income rather than wealth. “These individuals can shield virtually all their income from the income tax, because for them virtually all income derives from their ownership of businesses,” said Zucman in the report.
The report, A blueprint for a coordinated taxation standard for ultra-high-net-worth individuals, commissioned by the Brazilian G20 presidency, and authored by Gabriel Zucman, Professor of Economics at the Paris School of Economics and the University of California Berkeley, outlines a framework where billionaires would be required to pay a minimum annual tax equivalent to 2% of their wealth.
The initiative comes in response to findings that contemporary tax systems inadequately tax the wealthiest individuals, resulting in substantial revenue losses for governments worldwide.
A proposed global tax on the uber rich is already supported at the G20 by Brazil, France, Spain and South Africa, while the United States has opposed it.
Zucman's report estimates that implementing such a minimum tax could generate between $200 to $250 billion annually from approximately 3,000 global billionaires. Moreover, extending the tax to centimillionaires could yield an additional $100 to $140 billion.
This proposal builds on recent advancements in international tax cooperation, akin to the minimum tax agreements for multinational corporations, Zucman said.
He stressed that while not all countries may adopt the standard simultaneously, mechanisms like strengthened exit taxes and "tax collector of last resort" frameworks could ensure its effectiveness globally.
The blueprint suggests flexible implementation through various domestic instruments, including presumptive income taxes and broad-based wealth taxes, tailored to each participating country's sovereignty. This approach aims to mitigate tax avoidance strategies often employed by ultra-high-net-worth individuals.
Zucman said that international collaboration can reshape tax policies to foster more equitable growth. He said that the proposal has the potential to complement existing progressive tax frameworks.
By enhancing transparency and curbing tax competition between nations, proponents argue it could bolster public trust and support sustainable economic development initiatives.
The proposal, however, faces challenges such as valuing global wealth consistently and ensuring broad participation across jurisdictions. Discussions at the G20 symposium highlighted the need for robust information exchange mechanisms and incentives to encourage global adherence.
And while acknowledging potential economic impacts on wealth accumulation incentives, Zucman asserts that the benefits of funding essential public services outweigh these concerns.
The initiative now awaits further deliberation among G20 member states and broader international stakeholders to advance towards a more inclusive and sustainable global tax regime.
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