Most people will agree that the taxes taken as a whole should be progressive. When you add up all the taxes paid by an individual, the percentage of income should be positively related to the way income is related to others. Poor people should have a lower percentage of tax income than rich people. The political debate is generally about how progressive taxes should be as a whole.
In most economies, taxes are almost progressive until we reach very high incomes. The following chart is from a Recent Lectures by Gabriel Zukman.
In all four countries, taxes proceed gently (although the progress is not smooth) until we are very rich. In particular, billionaires seem to have significantly lower taxes as a percentage of their income than most other people.
This is hardly fair, but perhaps not so surprising. Specifically, much of the income of very wealthy people comes from the capital gains of assets they hold, and these are generally taxed only when those assets are sold. More generally, people with more money can afford to pay people to avoid taxes, while people with large amounts have the power to influence whether politicians or tax collectors try to stop that avoidance.
One way to correct this injustice, and to increase in insignificant income, is to try to change certain tax laws to prevent avoidance or taxable capital gains. Although very wise, this approach suffers from two political issues. First, such proposals are often very technical and rarely attract widespread general support. Secondly, very rich people are very skilled at finding individual cases and circumstances where such changes to the tax code seem unfair.
For example, wealth tax proposals are often countered by calling widows who live in large, expensive homes but have relatively low incomes. There are ways to avoid such issues, such as tax deferrals, but the media owners tend to be very rich, so avoiding them can easily get lost in public debate. Another example has recently been revealed in the UK after the government changed its law to allow farmers to pay inheritance tax. By doing this it was quickly argued that farmers would prevent them from handing over the farms to their children, demonstrations would be organized, newspapers would exercise and feature wealthy celebrities who bought the farms just to avoid inheritance tax.
Another approach is to look at only the total taxes paid by very wealthy people, and set the lowest level of wealth these individuals pay each year. They will be fined if they already pay that minimum, but if they are less than that minimum, they will have to pay additional taxes to reach that minimum. This is an idea pioneered by Gabriel Zucman, an economist in the Faculty of Economics in Paris and a former student of Thomas Pichetti. [1] Specifically, he suggests that billionaires, or billionaires with more than 100 million, should pay a total tax equivalent to a minimum of 2% of their wealth each year.
A major advantage of this approach is that it is difficult to disrupt politically. Taxes apply only to very wealthy people, so it is much more difficult to incite public sympathy for any of the parties involved. The wealth of very rich people can easily increase by more than 5% a year, so paying just 2% taxes is rarely causing hard work.
The proposal’s breakthrough took place at last year’s G20 summit. Get the government to agree: “In full tribute to tax sovereignty, we aim to work together to ensure that the super-high wealthy are effectively taxed.” “Zucman Tax.” It was adopted by the French Parliament (The far right abstained) rejected by the Senate.
The standard objection to taxing very wealthy people is mobility. If you try to tax billionaires more, they will move to a country that taxes them less and you will lose all their taxes. Again, after looking at this example in the UK last year, there was a report claiming the departure of wealth from the UK caused by the proposed tax changes. However, reality is quite different from rhetoric. In him Detailed suggestions for the G20 Zucman points out that recent research suggests that flights of such billionaires are modest and that the number of billionaires living in countries that are different from citizenship countries is still below 10%. Last year’s UK research was extensive at the time, but always in questionable positions, and after that It was exposed.
[2] To reduce this modest possibility of billionaires flying, the country can either charge an exit tax or continue to tax individuals wherever businesses are doing business.
Zucman’s proposal sets a minimum tax of 2% of wealth, so changing the tax system designed to reduce degenerativeness at the top is not competing with other proposals. In some respects, it can be seen as a means to make other measures easier to implement. For example, if billionaires are paying the minimum tax anyway, the proposal to reduce other tax avoidance forms would result in less opposition from very wealthy people, as the additional tax they pay means less because they reach the 2% threshold.
Zucman’s suggestion is very modest. It’s going to happen just
Stop the wealthiest people in a society who pays less taxes as a percentage of their income than anyone else. It is rarely stopped the wealth of the wealthiest people. Many people want to go further, but the big advantage of his proposal is that it is considered fair by virtually everyone. We know that financial gains have the power to convince governments that fair taxation leads to all sorts of imaginary fears, or that taxing them is not in their personal interest. The French government opposed the Zucman tax. The only realistic opportunity we can tax the very rich is to oppose such lobbying efforts to large-scale support. Only democratic pressure can fight the Plutocracy.
[1] A similar thing was proposed by Warren Buffet over a decade ago. He realized that his secretary had worked as hard as he was, but had paid twice as much tax. That’s what his suggestion was President Obama adoptsbut was rejected by the Congress.
[2] Arun Advani and colleagues see the impact of past changes in non-dome taxation here.
