In his book the society of equals, leading French sociologist Pierre Rosenvallon defines the rise of the global super-rich as inimical to the shared social order. “The secession of the rich,” writes Prof. Rosanvalon, means that “the richest part of the population now lives in a world unto itself.”
Tax avoidance is perhaps the most obvious and indignant way in which this “separatism” of the rich manifests itself. Whether by dumping their money in tax havens or exploiting loopholes and using creative accounting, the world’s billionaires these days pay a much smaller portion of their income to fund public goods than the rest of us. In the 1960s, the 400 richest Americans paid more than half of its income in the form of taxes. By 2018, it was less than a quarter.
At a time when governments around the world are struggling with high levels of debt and facing dramatic challenges such as dealing with the consequences of an extraordinary climate crisis, this crazy, upside-down state of affairs must be seen as intolerable. Such apparent inequality undermines the bonds of reciprocity and trust that sustain healthy societies. But for too long, reform has been seen as too difficult and complicated, despite enthusiastic voter support.
Fortunately, there are signs that, at least internationally, the political mood is changing. In July, the finance ministers of the G-20 will discuss new proposals for an annual global tax of 2% on the wealth of some 3,000 billionaires worldwide. According to French economist Gabriel Zucman, the plan’s architect, the wealth tax could raise $250 billion a year — more than the recently established global minimum tax on corporations and roughly price of the economic damage caused by extreme weather events in 2023. Before the G20, the governments of Brazil (which holds the chair), France, South Africa and Spain expressed support for Prof. Zucman’s idea.
Despite such support, the road to actually introducing such a tax is likely to be long and winding. Watertight criteria for valuing different types of wealth and assets will need to be developed and, crucially, a way to deal with non-participating tax jurisdictions will need to be found. Prof. Zucman believes that none of these problems are insurmountable; other sympathetic experts in the field have reservations. And as was the case with the proposed “Robin Hood” financial transaction tax in 2010, there was bound to be a fierce resistance campaign on behalf of some of the world’s most powerful individuals.
None of this should prevent a necessary and overdue debate from starting in earnest in Brazil next month. In the United Kingdom, refusal by both major parties to consider wealth taxes runs counter to both public sentiment and the country’s needs, following the economic turmoil of the pandemic and the war in Ukraine. But globally the successful ones performance of the minimum corporate tax suggests that an era in which free, mobile capital could be enjoyed may be coming to an end.
Countries provide health care, education and infrastructure that allow the very rich to make their money. Avoiding the obligation to pay a fair share of the associated costs should not be an option. By seeking a declaration to that effect in July, Brazil will be doing the rest of the world a favor.
