A modest global tax on billionaires, alongside a more effective minimum tax on multinational companies, would raise as much as $500 billion every year for public spending programmes, according to the findings of a European Union-backed study.
“Tackling tax evasion and harmful tax competition are particularly essential in the current context,” Joseph Stiglitz, a Nobel laureate in economics, wrote in the report’s foreword. “The coronavirus crisis exposed and exacerbated the global inequality crisis. The unfolding climate crisis will require unprecedented public efforts and investments.”
The status quo: With effective tax rates of just 0% to 0.5% of their wealth, dollar billionaires are taxed far less than ordinary citizens in proportional terms, says the report by the EU Tax Observatory, which is housed within the Paris School of Economics.
This is because billionaires frequently use shell companies to avoid paying income tax — a strategy that’s in a grey area between legal tax avoidance and illegal evasion.
For instance, the wealthiest French individuals pay negligible tax on the dividends they receive from shares in large listed companies. “How is this possible? In a nutshell, the dividend tax can be avoided by owning shares indirectly through a personal wealth-holding company.”
The fix: The study says that introducing a minimum tax on the world’s 2,500 billionaires, equal to 2% of their wealth, would yield close to $250 billion annually.
Meanwhile, a strengthened global minimum tax on multinational companies — free of loopholes — would raise an additional $250 billion per year.
Although policymakers are already considering a 15% minimum corporate tax rate for multinationals, these efforts have been undermined by a range of loopholes and “carveouts”.
The impact: “To give a sense of the magnitudes involved, recent studies estimate that developing countries need $500 billion annually in additional public revenue to address the challenges of climate change — needs that could thus be fully addressed by the two main reforms we propose,” the report states.
“A key message of this report is that tax evasion is not a law of nature, but a policy choice.”
A separate report by BlackRock, the world’s largest asset manager, found that wealthy nations should be giving developing countries at least $100 billion every year in grants alone — as this would cost them less than the impacts of runaway climate change.