The Paris College of Economics sits on the drab grounds of what was as soon as the École Normale Superieure for ladies, tucked away on town’s unspectacular backside edge. The PSE was solely based in 2006. It solely teaches graduate college students. It will probably’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 just lately returned to her hometown from Harvard. The PSE’s co-founder, Thomas Piketty, did greater than anybody else to place inequality on his occupation’s agenda. Twenty years in the past, he additionally supervised the masters thesis of the varsity’s present star, Gabriel Zucman, on whether or not excessive taxes immediate wealthy individuals to to migrate. Right this moment 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 international neighborhood that has clustered round this tax. In addition to economists, there have been delegates from the IMF, the Brazilian authorities, Belgium’s employees’ celebration and an OECD official attending in her personal capability as a “tax nerd”. PSE’s extra profit-maximising college students snuck in at no cost helpings of the Parisian-quality lunch buffet. The message of the convention: the super-rich pay decrease tax charges than bizarre individuals, however Zucman and his followers intend to alter that.
Although the audio system on the convention have been nearly all males, their discipline 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 really paid. “Billionaires are very visible, except in most public statistics,” Lucas Chancel of Parisian college Sciences Po informed 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 hardly ever pay a lot tax on these stakes. Most of those persons are liquid sufficient to go away income of their corporations, reasonably than taking cash out in taxable dividends. (Amazon, as an example, 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 sometimes hidden from sight in holding corporations.
How you can 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 alternative knowledge units: shareholders’ registers, earnings tax and company tax returns, knowledge on corporations’ overseas actions and even “rich 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 steered 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 shows on nations as numerous as Brazil, the Netherlands and the US, however the findings have been strikingly comparable: every nation’s super-rich are undertaxed in contrast with bizarre 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 People paid just a little 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 just as hard as I do and she pays twice the rate I pay”. No surprise the wealth of the 400 richest People 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 estate tax has almost disappeared in the US,” mentioned Zucman. The efficient charge paid by single descendants (usually 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. Practically half of Brazilian tax income comes from consumption taxes, says Theo Palomo of the PSE. These disproportionately hit the poor, who eat most of their earnings. However Brazil doesn’t tax dividends, which largely go to wealthy individuals. Palomo calculates that whereas bizarre Brazilians pay efficient tax charges of 45-50 per cent, the highest 1 per cent pay about 20 proportion factors much less. Zucman mentioned he couldn’t discover any instance of a rustic that’s been profitable in taxing the super-rich.
One attendee began a query: “It sounds like from all these presentations, we should tax billionaires . . . ” earlier than being interrupted by common laughter. Sure — that’s the message. And it might quickly begin turning into coverage.
Zucman’s challenge is that each billionaire ought to pay complete 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 via earnings and different taxes in their very own nation, “you are good, there’s nothing more to pay”. In the event that they pay much less, then any nation the place they do enterprise might levy further taxes to succeed in 2 per cent. As an example, Brazil or France might tax Amazon’s founder Jeff Bezos, as his firm operates there.
“It’s a bold proposal, yet modest at the same time,” mentioned Zucman. He defined that his “starting point” 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 cut 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 useful 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 comply with a shared declaration: “With full respect to tax sovereignty, we will seek to engage cooperatively to ensure that ultra-high-net-worth individuals are effectively taxed.”
That created modest international momentum. Brazil took the declaration to the UN Tax Committee and rich-country membership the OECD. At residence, Brazil’s authorities seeks a minimal tax on the 141,000 Brazilians with common incomes of greater than R$1mn ($172,000). It additionally desires 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 web price above €100mn. France’s higher home of parliament, the Senate, in all probability received’t move the “taxe Zucman”, however the state desires to implement a milder minimal tax of 0.5 per cent on web wealth. The UK has scrapped the “non-dom” scheme that allowed individuals to not pay taxes on overseas earnings and good points, and Zucman is promoting his plan to officers from different European nations.
He’s optimistic. Surveys present broad public help for the two per cent tax. He says few political events dare oppose it as that may imply they again “the right 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 may be taxed wherever they do enterprise. These shifting to tax havens might be charged an exit tax. If long-term residents of France transfer, say, to lower-tax Switzerland, Zucman desires France to proceed taxing them for years. Sceptics will stay unconvinced.
One doable final result is that extra nations will elevate different taxes on the wealthy, with out introducing wealth taxes. In any case, notes Advani, states usually have hassle sufficient making current taxes work with out creating new ones. The beginning factors could be increased taxes on capital good points and inheritance. That will 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 always have people who say, ‘The wealthy are too powerful, nothing will happen.’” Admittedly, that has been true for many years. However the Paris College of Economics is a formidable opponent.
Simon Kuper is an FT columnist
