Taxing The Others
The document, titled "A Blueprint for a Coordinated Minimum Effective Taxation Standard for Ultra-High-Net-Worth Individuals", puts forward a proposal for an internationally coordinated standard that would ensure effective taxation of ultra-high-net-worth individuals. The baseline proposal requires individuals with wealth exceeding $1 billion to pay a minimum annual tax equal to 2% of their wealth. This standard could be flexibly implemented by participating countries through a variety of domestic instruments, including a presumptive income tax, an income tax on a broad notion of income, or a wealth tax.
Motivations for a Coordinated Minimum Tax Standard
●Contemporary tax systems fail to effectively tax ultra-high-net-worth individuals. Studies indicate that, all taxes included, ultra-high-net-worth individuals tend to pay less in tax relative to their income than other social groups. This regressivity stems from the failure of income taxes, which in principle are the main instrument of tax progressivity, to effectively tax ultra-high-net-worth individuals.
●Tax avoidance at the top of the wealth distribution has a dynamic effect on wealth concentration. The relatively low individual capital tax rates for billionaires enable them to grow their wealth at a faster pace than the rest of the population.
●The international mobility of taxpayers poses challenges to increasing the taxation of ultra-high-net-worth individuals. There is a risk that taxpayers may relocate to countries with low taxes or that offer favorable regimes to high-net-worth foreigners. A common standard would limit the risk of tax-driven mobility.
●International cooperation would complement and facilitate national tax policies. A common minimum standard for the taxation of ultra-high-net-worth individuals would reduce incentives for the affected taxpayers to engage in tax avoidance and would create transparency about top-end wealth.
Main Features of the Proposal
●2% minimum tax rate. This rate was chosen because it would ensure that billionaires do not have lower effective tax rates (all taxes included) than socio-economic groups further down.
●Applies to individuals with wealth above $1 billion. The standard would apply to about 3,000 taxpayers globally and generate $200-$250 billion in tax revenue annually.
●Flexible implementation using national instruments. Participating countries could implement the standard through a presumptive income tax, an income tax on a broad notion of income, or a wealth tax.
●International coordination while respecting national sovereignty. Countries would agree on a common norm, but enforce it through domestic measures.
Challenges and Proposed Solutions
●Wealth valuation: The wealth of ultra-high-net-worth individuals, including private businesses, could be valued using existing methods and by relying on observable market values.
●Overcoming financial opacity: Information exchange between countries would need to be improved, including extending the Common Reporting Standard to include real estate and other non-financial assets.
●Identifying beneficial owners: Country-by-country reports of multinational companies should be enhanced with information on beneficial owners. New self-reporting requirements for ultra-high-net-worth individuals, similar to the country-by-country reports of multinational firms, could also be introduced.
●Dealing with imperfect coordination: To discourage tax-driven migration, countries could continue to tax ultra-high-net-worth individuals after a change of residency for a number of years. To incentivize broader participation in the agreement, mechanisms similar to the undertaxed payment rules included in the minimum tax on multinational companies could be adopted.
Other Options to Improve Taxation at the TopThe document also considers alternative options for improving tax progressivity, such as tackling forms of tax avoidance, regulating harmful tax practices, increasing the progressivity of existing individual income taxes, and improving the taxation of estates and inheritance. It concludes that, while these reforms would be valuable, they would not be as effective as the minimum taxation standard proposed in the blueprint.
ConclusionThe document argues that a common taxation standard for billionaires is technically feasible and that its implementation is a matter of political will. The document calls for immediate action at both national and international levels to make this proposal a reality.
