Taxing 0.5% Richest Can Lead to $2.1 Trillion Wealth Annually, Study Finds

A recent study by the Tax Justice Network reveals that governments could generate an additional $2.1 trillion annually by implementing a wealth tax similar to Spain’s, which targets the wealthiest 0.5% of households. This amount is twice what is needed each year to fund climate finance for developing nations, a key issue expected to dominate COP29 negotiations.

The study, highlighted on BBC World TV, calculates the potential revenue for individual countries if they were to impose a modest tax rate of 1.7% to 3.5% on the wealth of their richest 0.5%. The tax would focus solely on the wealthiest portion of households’ assets rather than their entire wealth.

The report, while inspired by Spain’s model, extends the tax to all classes of wealth in its projections, eliminating exemptions that dilute the Spanish law’s effectiveness. The findings suggest that, on average, each country could raise an amount equivalent to 7% of its annual budget.

Contrary to concerns often raised in the media, the study indicates that tax reforms targeting the ultra-wealthy have not led to significant relocation among this group. In Norway, Sweden, and Denmark, where similar reforms have been implemented, only 0.01% of the richest households moved abroad. A UK study on non-dom status reforms predicted a migration rate ranging from just 0.02% to a maximum of 3.2%. The Tax Justice Network assumed this conservative upper limit in its estimates of potential tax revenue.

The vast sums that could be raised from a wealth tax are due to the extreme concentration of wealth among the super-rich. On average, the wealthiest 0.5% of households hold over a quarter (25.7%) of a country’s total wealth, while the bottom half of the population owns just 3%. This disparity, the report argues, contributes to economic instability and is linked to negative social outcomes, such as lower productivity, worsening education, and shorter lifespans for the majority.

The root cause of these inequalities, according to the Tax Justice Network, is the unequal treatment of collected wealth—such as dividends, capital gains, and rental income—compared to earned wealth, like salaries. Collected wealth is typically taxed at much lower rates, even though it grows faster than earned income. As a result, only half of the wealth generated globally each year is earned through work, with the rest accumulating as rent, interest, dividends, and capital gains.

The report highlights that while the ultra-rich may still work, the vast majority of their wealth comes from owning business and real estate assets, not from salaries. For instance, three of the five richest individuals on Forbes’ 2024 Billionaire List—Elon Musk, Mark Zuckerberg, and Larry Ellison—receive salaries of just $1, supplementing their income with significantly more lucrative ownership-based compensation.

This two-tiered approach to wealth taxation has led to striking disparities. Billionaires typically pay tax rates that are half those of the average citizen while their wealth grows at twice the rate. Since 1987, the wealth of the top 0.0001% has quadrupled, exacerbating economic and social inequality.

The Tax Justice Network points out that this concentration of wealth not only creates imbalances with harmful consequences but also diminishes the economic productivity of that wealth. The organization argues that too much wealth is diverted into speculative investments rather than being used to produce goods and services in the real economy, contributing to the perception that the world is not wealthier despite the accumulation of vast fortunes.

To address these issues, the Tax Justice Network is urging governments to eliminate the two-tiered system by introducing wealth taxes. The report provides detailed recommendations on how to implement such taxes, using Spain’s model as a reference.

The report also highlights that recent polls show strong public support for wealth taxes on the ultra-rich in multiple countries. A majority of 68% of adults across 17 G20 nations favor higher taxes on wealth to fund necessary economic and lifestyle changes. Even among millionaires, nearly three-quarters support increased wealth taxes, with over half considering extreme wealth a threat to democracy.

The G20’s recent proposal for a 2% minimum wealth tax on billionaires has garnered positive reactions from policymakers and advocates. This proposal, designed to complement the global minimum corporate tax rate, would require widespread international agreement. However, individual countries could move ahead by adopting wealth tax measures similar to Spain’s, targeting the top 0.5% of households to address extreme wealth concentration in their economies.

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