The idea is simple. There are about 3,000 billionaires in the world and in recent years they have been getting richer and richer. Demands on hard-up governments from ageing populations and the drive to achieve net zero are growing all the time. Rather than expect voters already struggling to make ends meet to pay more, how about a wealth tax on Jeff Bezos, Elon Musk and their like?
This is an idea that has obvious attractions. As Joe Biden has pointed out, US billionaires make their money in ways that are often taxed at lower rates than the ordinary wage income of American workers. Overwhelmingly, their wealth comes from the rising value of their assets, and they use tax loopholes and legal accounting moves to minimise the tax they pay. Wealthy Americans pay an average tax rate on their incomes of just 8%. Biden thinks they should be paying a minimum of 25%.
The Brazilian government has an even more ambitious proposal – for an annual global tax levied at 2% on the wealth of the world’s billionaires. The French economist Gabriel Zucman has been asked to draw up a detailed plan for how a billionaire wealth tax would work ready for a meeting of G20 finance ministers in July.
Pre-pandemic, Zucman’s idea of an annual 2% tax on the wealth of billionaires would probably have been rejected out of hand, but Covid-19 and the energy shock imparted by Russia’s invasion of Ukraine have left governments in developed and developing countries desperately short of cash. The very poorest countries – who have suffered most over the past five years – don’t have the money to pay for much-needed investment in health or education, let alone tackling global heating.
The number of billionaires almost tripled in the 2010s and has continued to rise over the past four years, because the value of their assets – mostly shares and property – has been swelled by the policies pursued by central banks during the health emergency. Ultra-low interest rates and the bond-buying programmes known as quantitative easing meant money was cheap and plentiful. Stock market and property booms resulted, and even though people on much more modest incomes have also seen the value of their homes and pension plans increase, those with high levels of wealth to begin with were the biggest gainers. Even a 2% wealth tax would leave the rich much better off than they were a decade ago.
There is solid public support for a billionaire tax, which is hardly a surprise. Generally speaking, people want more to be spent on public services and would prefer the better off to foot the bill. The cost of living crisis has made people much more sensitive about the growing wealth gap between the super-rich and the rest. As Zucman told me when I spoke to him in Washington last month, not many people favour a system where those with the greatest ability to pay taxes are actually paying the least.
He estimates a 2% billionaire wealth tax would raise $250bn a year and while western governments would inevitably keep most of the revenue raised for themselves he says a chunk of the money would find its way from the global north to the global south.
All that said, there is a long way to go before a billionaire wealth tax becomes a reality. One objection to wealth taxes is that they stifle innovation and growth. This argument would be more compelling if there was evidence that the massive increase in the wealth of the super-rich over the past decade had financed an investment boom. In fact, investment has been historically weak.
There are, though, plenty of other issues, as with any new wealth tax. Wealth will need to be defined and an agreed mechanism put in place to put a value on assets such as property. It will be important to avoid having too many exemptions, because that will allow the very rich to shift their wealth into new forms so it can’t be touched.
Countries that have operated wealth taxes in the past have found they raise relatively small amounts of revenue, in part because the very rich can shift their money to tax havens. For the plan to work there would need to be international cooperation to prevent capital flight.
Given the many hurdles that would need to be jumped, there are tax experts, such as Richard Murphy, who think there are other less glamorous but ultimately more effective ways of taxing wealth. Brazil’s idea could easily go the way of the proposed Robin Hood tax, the idea of a small levy on financial transactions, which ran smack into the power of vested interests and never came to anything.
Similarly, billionaires will use all their influence to push back against the idea that they should be taxed more heavily. Back in the 17th century Louis XIV’s finance minister, Jean-Baptiste Colbert, famously said “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” Make no mistake: there will be plenty of hissing if the super-rich fear their wealth is seriously at risk.
They may find it harder this time than they have in the past to resist the pressure coming from skint governments and angry voters. Brazil’s plan may prove unworkable. It may never see the light of day. But it has put the issues of wealth and inequality on the agenda. And that’s a good thing.
Larry Elliott is the Guardian’s economics editor