Sunny Nagpaul
Sat, April 20, 2024
CHRISTINE OLSSON/TT News Agency
The world’s rich nations have agreed, several times, that helping poor countries cope with the fallout from climate change is a priority — but so far they’ve failed to put their money where their mouth is, raising a fraction of one percent of the money they’ve pledged for this task.
To solve this dilemma, Nobel laureate Esther Duflo has a proposal: Tax 3,000 of the world’s richest people to ensure the poorest can survive the climate-changed future.
Duflo presented the proposal this week at the most recent Group of 20 nations meeting held in Washington, D.C. The 2019 Nobel laureate in economics has a very straightforward goal in mind, she told Fortune: generate enough public funding to protect the world’s poorest citizens dying from climate change.
“That is our moral debt,” Duflo told Fortune. “It's much more money than the international community, and rich countries, have been able to commit towards poor countries for any form of climate action.”
The plan involves a global 15% minimum tax on the profits of large multinational companies, which was approved by the G20 in 2021, as well as a global 2% income tax on billionaires, which was proposed to the G20 for the first time in February by Brazil.
The idea is not to tax the ultra-rich more, Duflo said, but rather to ensure that they are paying income taxes in general—since notoriously, this group avoids a lot of taxation. And once their fair share of taxes are collected, she argued, “what better use of them than to compensate the very poorest people in the world for losing their life due to climate change?”
Duflo’s two-prong proposal argues that rich nations owe a “moral debt,” since they have historically released the most greenhouse gas emissions, while poor countries, which emit very little, suffer disproportionately from the most harmful disasters exacerbated by climate change. Duflo calculated that moral debt to be about $518 billion per year—based on the impact that a ton of carbon has on the climate, the effect rising temperatures have on likelihood of death, and the roughly $7 million statistical value of a human life as determined by the Environmental Protection Agency.
“We owe this money to the poor citizens of the world,” Duflo argued. While parts of this plan have previously been suggested by economists, the newest elements are “to calculate how much we owe, where it could come from, and how it would be spent,” she told Fortune. The moral debt, she noted, is based on current environmental damage calculations and would decrease if global greenhouse gas emissions are lowered. In her view, collecting income tax from the wealthiest individuals who often avoid paying taxes through complex financial maneuvering is a way to raise public funds “from sources where it wouldn’t be very painful,” she said. It “rather seems like a very reasonable place to find money.”
Duflo isn’t alone in that opinion–69% of people in the U.S and 84% of people in Europe support a global tax on millionaires, according to research by the French Association of Environmental and Resource Economists, and about 55% of people in the U.S support sharing half of the global tax with low income countries.
According to Duflo’s proposal, the two tax programs would generate about $400 billion each year in public funding to mitigate the climate change disasters, like heat waves, floods, droughts, and intense storms, that people in poor countries face much more severely than those in developed countries.
The first part of the program was approved by the G20 in October 2021, when 137 countries and jurisdictions agreed to a 15% global minimum tax on the profits of large multinational companies. If each company complies, the taxes would generate an extra $205 billion per year, according to estimates by the European Union Tax Observatory. As of this January, about 40 countries have implemented that tax, including the nations in the European Union, Japan, Greece and Italy.
The second tax program, a proposed 2% income tax on billionaires, was proposed by Brazil’s Finance Minister Fernando Haddad in February. France’s Minister of Finance Bruno Le Maire endorsed it, saying the G20 should aim to reach an agreement on the billionaire tax by 2027, Reuters reported.
And in fact, many wealthy people, like Berkshire Hathaway CEO Warren Buffet, have endorsed the logic behind the proposal for years. Buffett famously stated he pays less in taxes than his secretary, despite his colossal estimated net worth of about $136 billion. The wealthy, Duflo said, “should be taxed proportionately at the same level as anybody else on their income, which is not the case today.”
The 2% is a total—not in addition to any income tax the wealthy are already paying. For example, if a billionaire is currently paying a 1% income tax rate, they would only pay an additional 1% under Duflo’s plan. The plan would raise an additional $250 billion per year, and along with the corporate global tax, the total raised would approach $500 billion, the amount of “moral debt” Duflo calculated.
As for where the money would go, Duflo suggested direct cash transfers to individuals, city and state authorities. She believes this fund should be separate from “investments in renewable energy,” because there is growing importance for a fund that “is of everybody’s benefit,” and not just those with access to green technology. With app-based banking now widespread, she said, it’s relatively easy for people to access cash even in remote or poverty-stricken areas of the world, like Northern India, Bangladesh, and Africa.
Aside from the usefulness of cash in a time of crisis — allowing people to temporarily relocate, take time off work or move a herd of animals during a weather disaster — growing research suggests direct cash transfers are an increasingly effective way to end extreme poverty. A 2016 Oxford study found direct cash transfers can significantly improve health, economic outcomes and psychological well-being, and also helps people access resources for safety during climate-related disasters. Technology that predicts floods, droughts, heatwaves, and other natural disasters could even be used to automate direct cash transfers to the people most vulnerable, Duflo added.
Duflo’s proposal is one of the biggest climate relief funding packages ever proposed at the global level, and the next steps for the proposal will be picked up at a meeting of G20 finance ministers and central bank governors in Rio de Janeiro in July. The G20 members represent around 85% of the global GDP, over 75% of the global trade, and about two-thirds of the world population.
This story was originally featured on Fortune.com
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