G20’s wealth tax ambition: Will governments use the ultra-rich's money wisely?

G20 Finance Ministers recently announced a plan in Rio De Janeiro to help governments around the world improve the state of their finances. 

Some of it depends on taxing ultra wealthy individuals. It is not quite a Robin Hood plan, because Robin Hood robbed the rich to give to the poor, not to the government of King John.

The Group of Twenty (G20) claims to be “the premier forum for international economic cooperation”. The G20 comprises 19 countries  and two regional bodies: the European Union and the African Union. 

The G20 members represent around 85% of the global GDP, over 75% of the global trade, and about two-thirds of the world population.

The G20 statement (issued on July 27, 2024) says: “It is important for all taxpayers, including ultra-high-net-worth individuals, to contribute their fair share in taxes. 

Aggressive tax avoidance or tax evasion of ultrahigh-net-worth individuals can undermine the fairness of tax systems, which comes along with the reduced effectiveness of progressive taxation. 

No one should be able to evade taxation, including by circumventing transparency standards. Moreover, the international mobility of ultra-high-net-worth individuals creates challenges in ensuring adequate levels of taxation for this specific group, impacting tax progressivity. “

It is unclear what is their fair share, how much extra tax revenues could result or what the individuals concerned actually do with their money – see below. How?

The G20 plan is short on detail. Presumably, their plan might mean taxing investment income and gains at marginal personal rates of, say, 45%-50% instead of flat rates of, say, 25%-30%. 

Likewise, marginal tax rates perhaps on the carried interest (typically 20% of capital gains) of venture capital fund managers. 

Other possibilities might include taxing shareholders on hypothetical dividends they haven’t yet received from companies, as recently proposed in Israel.

The OECD supports the OECD twin pillar initiative for big multinational groups. Pillar 1 proposes to shift offshore profits onshore, pillar 2 calls for a minimum corporate income tax rate of 15%. 

The G20 also calls for greater transparency, cooperation, and taxation of crypto assets and real estate. None of these points are new.

Comments on the Robin Hood plan

The G20 plan is visionary, but it overlooks the enormous contribution made by some individuals in their work, e.g., Warren Buffet of Berkshire Hathaway, Bill Gates of Microsoft, Elon Musk of SpaceX and Tesla, and the founders of Google, Larry Page and Sergey Brin.

 Mark Zuckerberg of Facebook set up the Chan Zuckerberg Initiative.

Perhaps the most important G20 omission is that profits left in corporate groups is typically reinvested in the business, thereby generating employment and more prosperity.

The question is whether these individuals should pay more income tax or a wealth tax so that governments can invest the money in similar causes. And suppose governments don’t spend the extra tax money wisely?

What does the Torah say? In the Ki Tisa parsha (Exodus 30, 11-16), the children of Israel had to pay a flat tax of half a shekel each. 

If only the G20 had recommended that! The Chabad website estimates that corresponds to $5 each today, still not bad. Then there is the custom of charitable maaser/tithes of 10% of income. Pensions Issue:

Taxing investment income at higher marginal tax rates (say 45%-50%) instead of flat rates (say 25%-30%) may sound egalitarian. But this would hit savings intended for retirement pensions, and people are living longer now...

When will the G20 plan be adopted?

The OECD Pillar 1 & 2 initiatives are expected to be adopted in 2024-2027 in around 140 countries. The OECD has also introduced a multilateral instrument (MLI) which is a super tax treaty intended to tighten up e-commerce income taxation – on top of sales tax/VAT/digital service taxes. 

E-commerce businesses may need advice. Land registries may soon reveal their secrets electronically to tax authorities around the world. There is no timetable for taxing the ultra rich.....