The Paris Faculty of Economics sits on the drab grounds of what was as soon as the École Normale Superieure for women, tucked away on the town’s unspectacular backside edge. The PSE was solely based in 2006. It solely teaches graduate college students. It could’t match Harvard’s $53bn endowment. But it’s a remarkably influential place.
The college’s president, Esther Duflo, is a Nobel laureate in economics lately returned to her hometown from Harvard. The PSE’s co-founder, Thomas Piketty, did greater than anybody else to place inequality on his career’s agenda. 20 years in the past, he additionally supervised the masters thesis of the college’s present star, Gabriel Zucman, on whether or not excessive taxes immediate wealthy individuals to to migrate. As we speak Zucman, a boyish-looking 38, winner of the John Bates Clark Medal for younger economists that always precedes a Nobel, is main a drive to impose a worldwide wealth tax on the super-rich.
The EU Tax Observatory, which Zucman runs, hosted a convention in April on the PSE for the small however world group that has clustered round this tax. Apart from economists, there have been delegates from the IMF, the Brazilian authorities, Belgium’s staff’ occasion and an OECD official attending in her non-public capability as a “tax nerd”. PSE’s extra profit-maximising college students snuck in free of charge helpings of the Parisian-quality lunch buffet. The message of the convention: the super-rich pay decrease tax charges than unusual individuals, however Zucman and his followers intend to alter that.
Although the audio system on the convention have been virtually all males, their subject was arguably pioneered by a girl. In 1941 Helen Tarasov, an official within the US Division of Commerce, co-wrote a monograph known as Who Pays the Taxes?
It took almost one other 80 years to estimate what charges the super-rich truly paid. “Billionaires are very seen, besides in most public statistics,” Lucas Chancel of Parisian college Sciences Po advised the convention. Their earnings tax returns are sometimes modest, as a result of their wealth normally stems not from labour however from their stakes in corporations.
The super-rich not often pay a lot tax on these stakes. Most of those persons are liquid sufficient to depart earnings of their corporations, fairly than taking cash out in taxable dividends. (Amazon, as an illustration, has by no means paid a money dividend, whereas Alphabet issued its first ever solely final yr.) So wealthy individuals’s piles of cash develop, untaxed and infrequently hidden from sight in holding corporations.
The best way to map the wealth of the super-rich? From 2018, Piketty, Zucman and their collaborator Emmanuel Saez led a worldwide effort to measure all nationwide earnings. That required combining many various knowledge units: shareholders’ registers, earnings tax and company tax returns, knowledge on corporations’ overseas actions and even “wealthy lists” compiled by Forbes and others. Piketty and co arrange the World Inequality Database (WID), to which greater than 200 economists contributed knowledge. Their findings advised the super-rich have been richer and extra quite a few than beforehand thought. Inequality peaked in South Africa, the place the WID estimated that the richest 1 per cent owned 55 per cent of nationwide wealth.
The convention began with displays on nations as various as Brazil, the Netherlands and the US, however the findings have been strikingly related: every nation’s super-rich are undertaxed in contrast with unusual individuals. Zucman’s presentation on the US was typical: between 2018 and 2020, the nation’s efficient common tax charge was 30.7 per cent, however the 100 richest Individuals paid somewhat over 20 per cent. The tax cuts they received from Donald Trump in 2018 helped, however the issue is way older. In 2012 Warren Buffett complained that his secretary “works simply as laborious as I do and he or she pays twice the speed I pay”. No surprise the wealth of the 400 richest Individuals has climbed to equal 20 per cent of US GDP, up from 2 per cent in 1982.
The wealthy dodge taxes even in demise. “The property tax has virtually disappeared within the US,” stated Zucman. The efficient charge paid by single descendants (sometimes the final surviving partner of a pair) is 7 per cent, in contrast with a statutory charge of 40 per cent. Related dynamics suppress British inheritance taxes, says Arun Advani of Warwick College.
Or take Brazil, whose excessive inequality is barely exacerbated by its tax system. Almost half of Brazilian tax income comes from consumption taxes, says Theo Palomo of the PSE. These disproportionately hit the poor, who devour most of their earnings. However Brazil doesn’t tax dividends, which principally go to wealthy individuals. Palomo calculates that whereas unusual Brazilians pay efficient tax charges of 45-50 per cent, the highest 1 per cent pay about 20 share factors much less. Zucman stated he couldn’t discover any instance of a rustic that’s been profitable in taxing the super-rich.
One attendee began a query: “It appears like from all these displays, we must always tax billionaires . . . ” earlier than being interrupted by normal laughter. Sure — that’s the message. And it may quickly begin turning into coverage.
Zucman’s mission is that each billionaire ought to pay whole annual taxes equalling at the very least 2 per cent of their wealth. That, he defined, is the extent the place they might pay the identical tax charge as everybody else. If somebody already pays 2 per cent by earnings and different taxes in their very own nation, “you might be good, there’s nothing extra to pay”. In the event that they pay much less, then any nation the place they do enterprise may levy extra taxes to achieve 2 per cent. As an example, Brazil or France may tax Amazon’s founder Jeff Bezos, as his firm operates there.
“It’s a daring proposal, but modest on the similar time,” stated Zucman. He defined that his “place to begin” was studying from the “failure” of most earlier European wealth taxes. Whereas they hit millionaires, his would exempt even these with wealth of €4.8mn (the brink for getting into the worldwide 0.1 per cent).
That is hardly the Bolshevik revolution. Certainly, 2 per cent wouldn’t even scale back inequality, as billionaires’ wealth has been rising by 7 per cent a yr. Piketty, who helps his former protégé’s plan, grumbles that it’s solely “a helpful first step”.
The EU has lengthy backed Zucman’s analysis. However his huge breakthrough got here final yr, when Brazil, host of the G20 summit, invited him to current his plan to the assembled finance ministers. Brazil twisted the arms of even Argentina’s libertarian president Javier Milei to conform to a shared declaration: “With full respect to tax sovereignty, we are going to search to have interaction cooperatively to make sure that ultra-high-net-worth people are successfully taxed.”
That created modest world momentum. Brazil took the declaration to the UN Tax Committee and rich-country membership the OECD. At house, Brazil’s authorities seeks a minimal tax on the 141,000 Brazilians with common incomes of greater than R$1mn ($172,000). It additionally needs to institute a dividend tax. In France, the Assemblée Nationale voted in February for a minimal 2 per cent tax on the wealth of individuals with internet value above €100mn. France’s higher home of parliament, the Senate, most likely received’t move the “taxe Zucman”, however the state needs to implement a milder minimal tax of 0.5 per cent on internet wealth. The UK has scrapped the “non-dom” scheme that allowed individuals to not pay taxes on overseas earnings and beneficial properties, and Zucman is promoting his plan to officers from different European nations.
He’s optimistic. Surveys present broad public assist for the two per cent tax. He says few political events dare oppose it as that may imply they again “the suitable of billionaires to pay zero tax”. And even when a minimal tax begins low, as soon as in place, it may be raised.
He says a worldwide tax can work even when nations together with Trump’s US shun it. Wealthy individuals might be taxed wherever they do enterprise. These transferring to tax havens might be charged an exit tax. If long-term residents of France transfer, say, to lower-tax Switzerland, Zucman needs France to proceed taxing them for years. Sceptics will stay unconvinced.
One doable consequence is that extra nations will elevate different taxes on the wealthy, with out introducing wealth taxes. In spite of everything, notes Advani, states sometimes have bother sufficient making current taxes work with out creating new ones. The beginning factors is likely to be greater taxes on capital beneficial properties and inheritance. That may be within the spirit of Zucman’s motion.
Piketty, an attentive listener for a lot of the convention, took the stage on the finish to bless the motion. He hoped for “a wave of reform”, like between 1910 and 1940 when developed nations adopted “very progressive” earnings taxes.
He scoffed: “You at all times have individuals who say, ‘The rich are too highly effective, nothing will occur.’” Admittedly, that has been true for many years. However the Paris Faculty of Economics is a formidable opponent.
Simon Kuper is an FT columnist
