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Let’s Turn the Taxation of Billionaires Upside-Down

Oct. 25, 2021, 7:00 AM

According to the latest super-wealth update, Elon Musk is now richer than Jeff Bezos, with $228 billion and $191 billion in wealth, respectively (Bloomberg). Earth’s 2,755 billionaires have accumulated in 2021 more than $13 trillion (Forbes). This represents 3.2% of the world’s total wealth, and is higher than the wealth of India (3.1%), Italy (2.8%), Latin America (2.6%), Canada (2.4%), Australia (2.2%) and Africa as a whole (1.2%),

To this day, it is still unclear whether these billionaires are paying their fair share of taxes, which in itself is no longer acceptable. This super-wealth was not built by these billionaires alone, it is the result of projects carried out in collaboration with worldwide citizenry and our ecosystems. When a billionaire owns more wealth than most countries and this super-wealth has been built with social resources, there must be tax transparency so that taxpayers, the “silent partners” of these billionaires, are able to assess whether the taxes that are paid are sufficient.

In Canada, the available statistics for 2018 show that 2,835 very wealthy Canadians with an average income of $8 million paid income tax of 30%. These statistics include millionaires and billionaires, and the taxes paid by billionaires are likely to be lower. According to an analysis of 2018 tax data by Emmanuel Saez and Gabriel Zucman at the University of California, Berkeley, the richest 400 families in the U.S. paid an average tax rate of 23% while the bottom half of households paid a rate of 24.2%

Over the past few years, a few billionaires have admitted that they do not pay their fair share of taxes, including Warren Buffet, who famously stated that he pays less taxes than his secretary. If it was an isolated case at the time of his declaration, some 10 years ago, it is no longer so today. Most other billionaires, who paid more taxes than Buffet at that time, would indeed without any doubt have asked their tax professionals to do what is necessary to pay a similar rate.

When we look at the corporate and personal tax system as a whole, we realize that someone clever enough to navigate tax rules in a way to avoid them can end up in the billionaire class, never having paid his or her fair share of taxes.

For almost 10 years now, the international tax reform of the OECD-G20 has been planned to ensure that multinationals do pay their fair share of taxes, but when will such international efforts focus on billionaires? Pillar Two of the international tax reform, which establishes a global minimum tax, targets about 2,000 multinationals and will bring in $150 billion, an amount similar to what a minimum tax rate of 50% for billionaires would raise annually. And it is a much simpler tax regime to implement than the global minimum tax applicable to multinationals, because it does not require complex measures for consolidated groups of companies, sometimes operating in more than 100 different countries.

The example of a minimum tax rate is given here, but it could be a wealth tax or a bouquet of different taxes. Let us focus and agree on the principle that billionaires must pay their fair share of taxes, and then we can choose the best way to proceed.

One thing is for sure, a certain form of carbon tax must be implemented for billionaires. Carbon pricing initiatives currently in place, or being discussed in several jurisdictions, are mainly aimed at greenhouse gas-emitting companies. However, the consumption of individuals themselves is responsible for a good part of the emissions, with a concentration of emissions among the better-off. No country has yet set a target for individuals. With new technologies, it is now easy to calculate your carbon footprint, and taxing individuals themselves is becoming an option to consider. A GHG tax on individuals would have several merits: respect for the “polluter pays” principle, progressiveness, the possibility of targeting the very rich who are, in reality, the biggest emitters.

Regardless of our political allegiances, to tolerate 2,755 people sharing $13 trillion while more than a billion people live on $2 a day is a gross misallocation of resources. To accept that these billionaires are not paying their fair share of taxes, and in all legality, is both unfair and a step backwards to a time before the French Revolution, when lords and nobles were exempted from taxes. And the shame is compounded when these billionaires seize political power and, of all the billions of Earth’s citizens, are the ones we choose to rule over us.

The list of billionaire presidents and prime ministers is a long one. In particular, we note Najib Mikati, prime minister of Lebanon (2005, 2011-2014, 2021); Donald Trump, president of the United States (2017-2021); Sebastián Piñera, president of Chili (2010-14, 2018-present); Petro Poroshenko, president of Ukraine (2014-2019); Bidzina Ivanishvili, prime minister of Georgia (2012-13); Andrej Babiš, prime minister of the Czech Republic (2017-present), and Silvio Berlusconi, prime minister of Italy (1994-95, 2001-06, 2008-11) and elected for a second time to the European Parliament in 2019.

The fact that most of these billionaires elected to heads of state appear in the Panama or the Pandora Papers is a cause of concern.

According to Robert Frank, author of Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich, voters elect billionaires because of this collective wealth fantasy that if a billionaire is elected, some of his expertise at creating jobs and wealth will spread to the country. And it truly is a fantasy, because so far it has not worked in any country.

In addition to the difficulty of taking somebody who is economically motivated and transforming that person into somebody who is democratically motivated, what is most threatening with a billionaire in power is the fact that it contravenes the balance that needs to be maintained in a country between the power of governments, markets, and citizens.

When this balance is not maintained, the system attempts to reestablish a balance on its own, and during this adjustment period, the country does not use its resources optimally. For example, if a government is more powerful than its citizens, the result will be dictatorship. In the opposite case, if citizens become more powerful than government, there will be anarchy. And so on and so forth.

The case in which the outcome has yet to be known is when market rules beat out government rules. This is what is happening in most industrialized countries. Since the 1980s, the power struggle between the two camps has tilted in favor of high finance. With the rise of neoliberalism in politics, the argument is that wealth creation is stronger when the government steps out of the way and leaves the road open to private initiative.

Having a billionaire taking power over a country is probably the worst scenario, because it is as if market forces ally with political power. It then becomes very difficult for citizens to assert their rights when they go against the interests of the market. For example, as is the case presently, if multinationals and billionaires are not paying their fair share of taxes, it can become very difficult to hope for genuine political change.

If, since the Covid-19 crisis, we have seen improbable advances in global taxation, it is particularly because governments have embraced the importance and necessity of overcoming this crisis. Central governments have regained power and the forces between government, markets, and citizens are better balanced. This improved power balance along with the implementation of global tax reform is very important.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Brigitte Alepin is a Canadian tax specialist who has worked in practice for 30 years and is now a professor of taxation at the University of Quebec in Outaouais. She is the cofounder of TaxCOOP, the director of the movie “Fast & Dangerous Race to the Bottom,” and cowriter of the movie “The Price We Pay.” The Fast & Dangerous Race to the Bottom” recently won the Outstanding Achievement award at the Best Shorts Competition 2020 Humanitarian Awards.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at TaxInsights@bloombergindustry.com.

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