Wednesday, August 21, 2024

Global Wealth Tax Could Raise $2.1 Trillion Annually for Climate Action and More

"To make our economies secure and protect the earner way of life that has defined the modern era, we need wealth taxes that end the two-tier treatment of wealth," says a new report.

August 20, 2024
Source: Common Dreams


A sign from a protest in London on April 2, 2022, advocating for taxing the rich and against increased cost of living. (Photo by Alisdare Hickson, Flickr, CC BY-SA 2.0)

With countries set to focus heavily on climate finance for the Global South at the 2024 United Nations Climate Change Conference in November, the Tax Justice Network on Monday offered a proposal that could raise double the amount of money needed to help developing countries transition to clean energy and adapt to extreme weather—and there’s already proof the idea is effective and politically feasible.

The “featherlight” wealth tax introduced in Spain less than two years ago raised hundreds of millions of euros last year by taxing the net worth of the 0.5% richest households, and the group’s report argued that the law should serve as a model for a global wealth tax like the one increasingly supported by finance ministers in wealthy countries.

Spain’s wealth tax, also called the “solidarity surcharge” by Prime Minister Pedro Sánchez, applied a tax of 1.7% to 3.5% to the richest 0.5% of the country’s households—turning away from the “two-tier treatment of collected wealth and earned wealth” that TJN said is “the root of the problem” of growing inequality.

“Collected wealth—i.e. dividends, capital gains, and rent gained from owning things—is typically taxed at far lower rates than earned wealth—i.e. salaries gained by working,” said TJN. “At the same time, collected wealth typically grows faster than earned wealth. Today, only half of the wealth created around the world each year goes to people who earn for a living—the rest is collected as rent, interest, dividends, and capital gains.”

The two-tier tax system allows billionaires to pay tax rates that are half the rates paid by the rest of society, which has allowed the wealth of the richest 0.0001% people in the world to quadruple since 1987 “to the detriment of economies, societies, and planet,” said TJN.

Because the richest 0.5% of households control, on average, more than 25% of any given society’s wealth, the report states, if countries around the world replicated Spain’s solidarity surcharge, governments could raise $2.1 trillion annually—enough to pay for climate finance as well as other pressing needs.


By definition, a billionaire owns more wealth than an average U.S. household could spend in 10,000 years. Wealth contributes a lot less to the economy than it can when it’s pharaoh-tombed like this, making economies poorer than the sum of their parts.

“To guarantee a good life for all citizens and preserve social cohesion despite these challenges, governments around the world need the fiscal space to transform economies in a socio-ecological manner, ensure high-quality education for all, guarantee access to modern health services, and fulfill basic needs like affordable housing, food, and transportation at the same time,” reads the report. “Such measures are only feasible with sufficiently endowed and stable public budgets. A moderate, progressive wealth tax could help countries to raise these urgently needed funds.”

The report shows, said Oxfam International, that “E.U. governments can no longer excuse their ‘lack of funds’ for failing to fight the climate crisis and end poverty. The money they need is in the pockets of the super-rich!”

In each country, half the population holds only about 3% of the wealth—a persistent inequality that is “making economies insecure and is directly linked to people having to spend more than they bring in.”

The current global tax system treats billionaires as though they “earn wealth like everybody else, they’re just better at it,” said Mark Bou Mansour, head of communications for TJN. “This is bogus.”

“It’s impossible to earn a billion dollars,” Bou Mansour said. “The average U.S. worker would have to work for a stretch of time 13 times longer than humans have existed to earn as much as wealth as the world’s richest man has today. Salaries don’t make billionaires, dividends and rent money do. But we tax dividends and rent money much less than we tax salaries, and this is destabilizing the earner model our economies are based on.”

“By definition, a billionaire owns more wealth than an average U.S. household could spend in 10,000 years,” he added. “Wealth contributes a lot less to the economy than it can when it’s pharaoh-tombed like this, making economies poorer than the sum of their parts. To make our economies secure and protect the earner way of life that has defined the modern era, we need wealth taxes that end the two-tier treatment of wealth.”

On the BBC, which featured TJN’s report in a segment on Monday, Bou Mansour debunked the common claim that taxing the richest households would harm countries’ economies by pushing rich people to move away.

“This is an area where public perception has been lagging behind the evidence,” said Bou Mansour. “Recent wealth taxes in Norway, Sweden, and Denmark all resulted in a migration rate of 0.01% among the super-rich who were taxed. So what the data shows is that the super-rich do not leave en masse, and what’s more striking is that the data shows if countries do not implement wealth taxes, that is far more harmful to the economies.”

The report notes that concerns about the super-rich simply hiding their wealth in tax havens are valid, and called on countries to ensure that the U.N. tax convention currently being negotiated “delivers robust tax transparency standards.”

“Countries should collaborate to combat tax abuse by the ultra-rich, a challenge addressed in another strand of literature,” reads the report. “A straightforward starting point for combating this form of tax abuse in the context of a wealth tax is the implementation of full beneficial ownership transparency, at least within the country itself.”

While a number of G20 finance ministers have come out in support of a global wealth tax this year, leaders in some wealthy countries including U.S. Treasury Secretary Janet Yellen have refused to back the proposal.

“The vast majority of countries are currently working on what can be the biggest shakeup in history to global tax rules, to end the scourge of global tax abuse by multinational corporations and the superrich. But a minority of rich countries still seem to be holding back from support for a robust framework convention on tax,” said Alison Schultz, research fellow at TJN and co-author of the report. “This needs to change now—the climate can’t wait, and nor can the people of the world.”

How Progressive Taxation Can Raise Trillions for Climate Action
August 13, 2024
Source: African Arguments

Image by Denis Onyodi/IFRC/DRK/Climate Centre

Despite being responsible for a tiny fraction of the greenhouse gas emissions, African countries are among the worst affected by the climate crisis and least financially able to cope. Vulnerable communities are being devastated by cyclones, droughts, floods, and heatwaves and need urgent action to adapt. Yet the debt distress that over half of African countries face mean much of their limited budgets is being spent on simply servicing debts.

While those least responsible for the climate crisis are most affected, those most responsible – wealthy nations and corporations that rely on fossil fuels and industrial agriculture – are shirking their responsibility. Although rich countries are projected to have belatedly fulfilled their pledge to provide $100 billion in climate finance per year in 2022, much of this has been in the form of loans rather than grants. The result is that climate-vulnerable countries are pushed deeper into debt, creating perverse incentives to scale up fossil fuel extraction to repay those loans.

This broken system demands a new approach that guarantees a huge increase in financing for global climate responses.

A new report by ActionAid reveals that tax justice offers a pathway to raising climate finance. Finding the Finance: Tax Justice and the Climate Crisis shows that with ambitious and progressive taxes to target the biggest and wealthiest polluters, rich countries can raise the trillions that can give our planet and its people a fighting chance to address the climate crisis.

By increasing their tax-to-GDP ratios by 4%, developed countries could raise more than $2 trillion per year for climate finance. That may sound like a lot, but there is already a 26% difference between Ireland’s tax-to-GDP ratio (21.9%) and Denmark’s (48%). 4% is entirely feasible.

A range of progressive, gender-responsive, and climate-sensitive measures that address tax avoidance and target high earners and big corporations would ensure that the wealthiest and those that are most responsible for causing climate change would bear the burden. As outlined in the report, this could include wealth taxes, property taxes, capital gains and inheritance taxes, trade and digital taxes, as well as personal and corporate income taxes. Every country would need to use a different combination of measures to increase their tax to GDP ratios fairly.

Fair taxation can also help developing countries raise revenues domestically. However, African countries have long been constrained in setting their national tax rates by the OECD, the club of rich countries that currently control the global tax framework. This deeply unfair situation means that international corporations are barely taxed in Africa even as they extract staggering profits from our resources.

There is some hope that this could changes soon. Last year, the UN agreed to develop a UN Framework Convention on Tax, as advocated for by African countries. Negotiations are still underway about how it will work, but initial signs are positive that it could transform global rules in ways that help all countries increase tax revenues through progressive and climate sensitive reforms. This would make a huge difference to developing countries’ ability to raise domestic resources for vital priorities. As ActionAid’s report also shows, if the 60 most climate-vulnerable countries were to increase their own tax-to-GDP ratios by 5%, it could raise over $300 billion per year. This could and should be achieved through the same range of progressive tax reforms that are proposed for wealthy countries, making sure that the burden does not fall unfairly on the poorest, a mistake that recently prompted widespread protests in Kenya.

The new UN Framework Convention on Tax also provides an opportunity for globally coordinated action to introduce a range of global taxes that could raise trillions of dollars through measures such as windfall taxes, wealth taxes, higher tax rates on the income of the top 1%, and financial transaction taxes, as well as through a range of carbon and climate damage taxes, including on aviation and shipping.

By addressing tax loopholes, tackling illicit financial flows, and implementing fairer tax regimes, vast resources can be unlocked for the climate action needed to put our planet on track for survival. There will always be resistance, as we saw from wealthy countries in the OECD who benefit most from the present global tax rules and who have tried to block a new UN Framework Convention on Tax. But the momentum for radical reform is strong and the OECD countries have been consistently outvoted in the UN General Assembly.

Imagine the resilience-building infrastructure, early warning systems, renewable energy, public transport, and sustainable agriculture systems that could be funded with this money. Imagine the empowered communities adapting to a changing climate, not succumbing to it. Critics might argue that this is an internal issue for African nations. However, the historical exploitation, unfair trade practices, and biased tax global tax regimes that persist contribute significantly to the limited financial resources on the continent. Climate justice demands that those most responsible for the crisis accept responsibility and act.

Progressive taxation is also about more than raising money. It is about sending a clear message that those who have benefited most from the system causing this crisis have a moral obligation to contribute to its solution. It’s about shared responsibility within nations and across the globe.

African governments and civil society must push for progressive tax reforms under the new UN Framework Convention on Tax, and at home. And wealthy nations should support these efforts and acknowledge their historical responsibility. The climate crisis demands a global response, and true justice lies in empowering Africa to chart its own way out of this crisis.

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