From the G7 "quarrel" to the G20, the "wealth tax" is one step closer to implementation.
On the opening day of the Paris Olympics, the G20 finance ministers and central bank governors concluded a two-day meeting. After tough negotiations, the meeting issued the "Rio de Janeiro G20 Ministerial Declaration on International Tax Cooperation" (hereinafter referred to as the "Declaration"), committing to strengthen dialogue on issues related to fair and progressive taxation, including the taxation of ultra-high-net-worth individuals.
"Respecting tax sovereignty to the fullest extent, we will strive to cooperate to ensure the effective taxation of ultra-high-net-worth individuals," the Declaration stated. Forms of cooperation include sharing best enforcement practices, encouraging discussions around tax principles, and designing anti-avoidance mechanisms, including addressing potentially harmful tax enforcement practices.
Just two months ago at the G7 finance ministers' meeting, despite France's clear support, the issue of a wealth tax was taken off the G7 summit's discussion table due to strong opposition from US Treasury Secretary Yellen.
Advertisement
The reason why "taxing the rich" can be successfully promoted at the G20 is largely because it is a priority supported by the current rotating chair country, Brazil. Brazil has proposed a wealth tax of 2% on individuals with wealth exceeding $10 billion, which is expected to generate an additional $250 billion per year from up to 3,000 eligible ultra-rich individuals.
Professor Zhao Yongsheng, a researcher at the National Institute of Open Economy at the University of International Business and Economics and a doctoral supervisor at the Sorbonne University in Paris, told Yicai reporters that currently, the taxation of global wealthy individuals is relatively unregulated. For example, some tax havens have very low tax rates, while the tax rates in Nordic and Western European economies are higher, and wealthy Americans often use various tax avoidance strategies to reduce their tax burden.
He believes that the previously successful implementation of a global minimum corporate tax will provide important experience and reference for the introduction of a wealth tax. However, agreeing on a specific global minimum wealth tax will require a long period of negotiation.
What does the "Blueprint" say?
Following the G20 meeting of finance ministers and central bank governors, a joint communiqué was issued, stating that the rotating chair country, Brazil, submitted a "Blueprint for Coordinated Minimum Effective Taxation Standards for Ultra-High-Net-Worth Individuals" (hereinafter referred to as the "Blueprint"). The document was written by French economist Gabriel Zucman, who studies income inequality and tax avoidance.
The Blueprint argues that the current tax system is ineffective in taxing ultra-high-net-worth individuals, resulting in these individuals having an effective tax rate that is lower relative to their income compared to other social groups. For example, even in France, which has a progressive tax system, billionaires pay only 27% of their income in taxes, while the effective tax rate for most social groups is close to the macro tax rate, which is 52%. This inadequacy of the tax system allows the wealth of the world's richest people to grow at a rate far above the average, further exacerbating wealth concentration and inequality. For instance, the wealth growth rate of global billionaires is 7.1% per year (after adjusting for inflation), while the wealth growth rate for ordinary people is 3.2% per year.In the "Communiqué," G20 finance ministers and central bank governors agreed that aggressive tax avoidance or evasion by ultra-high-net-worth individuals (UHNWIs) undermines the fairness of the tax system and weakens the effectiveness of progressive taxation. Therefore, efforts should be intensified to ensure full compliance with domestic tax obligations. Jurisdictions should also take autonomous actions or implement capacity-building initiatives to improve the effectiveness of tax collection. At the same time, the international mobility of UHNWIs makes it challenging to levy taxes at an appropriate level for this specific group, affecting the progressivity of taxation. Promoting effective, fair, and progressive tax policies remains a significant challenge, and international tax cooperation and targeted domestic reforms can help address this issue.
The "Blueprint" proposes an internationally coordinated standard to ensure that UHNWIs (with wealth exceeding $1 billion) pay at least 2% of their wealth in taxes annually, which could increase tax revenue by $200 billion to $250 billion per year. If the tax scope is expanded to individuals with wealth over $100 million, an additional $100 billion to $140 billion is expected to be raised.
Zhao Yongsheng told Yicai reporters that a successful case of global tax regulation is the implementation of the global minimum corporate tax, although the final agreed standard (15%) is lower than the corporate tax rates in many economies, the more important aspect is that this policy has resolved the issue of the previous tax system's lack of standardization.
Zhao believes that the success of the global minimum corporate tax lays the foundation for the next step of implementing a global minimum wealth tax, as the current collection of taxes on the wealthy also has the characteristics of being unregulated and fragmented. However, the introduction of a wealth tax will go through a lengthy process of bargaining, and the final minimum wealth tax rate will not be very high.
The implementation challenge is not small.
Brazil's Finance Minister Haddad (Fernando Haddad) stated that the final communiqué will be "historic" due to its mention of taxing the super-rich, and the G20 meeting hosted by Brazil this year will become a new starting point for discussing tax fairness issues.
However, although G20 members reached a consensus during the meeting, they also indicated after the meeting that the difficulty of implementing the agreement is not small.
"We all know that we are embarking on a very, very challenging process," said European Economic Commissioner Gentiloni (Paolo Gentiloni), adding that "the first step will be to carry out information exchange work between different countries. This will be a matter to be discussed in the coming months and years."
US Treasury Secretary Yellen (Janet Yellen) expressed skepticism about the implementation of a wealth tax at the G7 finance ministers' summit in late May, stating that she "does not support or accept the concept of such a global collective arrangement." After the meeting, Yellen stated that "it makes sense for most countries to adopt this progressive tax system," but she remains cautious about new global tax policies, "tax policies are difficult to coordinate globally, we believe it is unnecessary and should not try to negotiate a global agreement. We believe that all countries should ensure the fairness and progressivity of their tax systems."
"Anglo-American cultural countries usually respect those who become rich through entrepreneurship and investment, considering that the wealth of these individuals is legally obtained through market mechanisms, so it is not common to impose higher taxes on them. Instead, these countries rely more on market mechanisms and charitable donations to achieve wealth redistribution. For example, many wealthy Americans reduce their tax burden and gain social recognition by setting up charitable foundations and donations," said Zhao Yongsheng.
Leave a Reply