Well, thank you, thank you so much. It's such a pleasure to be here with you today, and I'm very much looking forward to the conversation. So I'm happy to talk today about a new tax system for a globalized world, and the starting point of my remarks is that progressive taxation is a key pillar of democratic societies, and that's due to three reasons. So number one, progressive taxation strengthens social cohesion and trust in government, and we know that these things — trust in government, social cohesion — are essential to drive economic growth. Number two, a progressive tax system is essential to fund the public goods and services like education for all, health care for all, public infrastructure that are key engines of growth.
And number three, a progressive tax system is essential to distribute fairly the gains from globalization. The problem is that there is growing recognition that our tax systems globally, instead of being progressive, tend to be sharply regressive towards the top of the distribution. In other words, instead of rich people paying more tax relative to their income than middle-class individuals, what the evidence shows is that the super rich — and I'm going to make that precise in a second — the super rich tend to have lower effective tax rates than the rest of the population. So let me unpack this graph here, which presents the evidence. On the x-axis, you have the different groups of the income distribution. So P0-10 means the 10% of adult individuals with the lowest income, P10-20 is the next 10%, and so on. And then on the right end of the x-axis, you have a zoom on the very top of the income distribution. You know, it gets more granular as we move to the top, and the last category denotes billionaires, meaning US dollar billionaires, people who have more than one billion dollars in net wealth, in total assets net of their debts. By definition, because they are so wealthy, they're also at the top of the income distribution. When you have a lot of wealth, you also have a lot of income, okay? And then on the y-axis, you have the effective tax rate paid by these different groups of the distribution when you add up all taxes paid at all levels of government.
So this includes absolutely everything. So this includes not only the individual income tax, but also the corporate tax, which is assigned to the owners of corporations, but also consumption taxes like the VAT when they exist, inheritance tax, everything, okay? Everything is taken into account, okay? So when you do this exercise — and this is something that has started to be done just over the last four or five years, creating comparable, internationally comparable series of how much tax each group of the population really pays when you take a comprehensive view — so we have good studies for four countries at the moment, and there's a lot of work going on, and I'd love to be able to do series for Korea. There's a lot of work going on in other countries, but at the moment we have these four countries here: the US and three European countries — France, Italy, and the Netherlands. And in all cases, the same pattern emerges: the super rich, billionaires, have essentially the lowest effective tax rates of all socioeconomic groups. The decline in tax progressivity is particularly striking in European countries. Take a country like France, for instance. The level of taxation overall is quite high. The government collects the equivalent of 50% of national income in taxes. So quite unsurprisingly, for all groups of the population, they all pay, you know, close to 50% of their income in tax, a bit less or a bit more than that, with just one big exception, which is the super rich. For instance, the billionaires in France have an effective tax rate of only about 25%, half of the average rates in the population, half of what the working class or the middle class pays, okay? So billionaires pay less tax, to summarize, than their secretaries. And you have the same problem in the Netherlands, in Italy, in the US. The collapse in tax progressivity is less striking than in Europe. That's because the US, among high-income countries, is a relatively low-tax country, okay? So that's the problem. And now let's try to understand a little bit what is causing this problem. Where is that coming from? And this is coming from a failure of the individual income tax. The individual income tax, in principle, is supposed to be the pillar of tax progressivity. In particular, it's supposed to offset the regressivity of indirect taxes like the VAT. But when you're very rich, it's relatively easy to pay little in income tax. You can do that in various ways, but let me take a couple of examples, you know, to just fix ideas. A couple of years ago, there was a revelation by the US media, ProPublica, on the income tax payments of US billionaires. And in those revelations, you see people like Jeff Bezos or Elon Musk in some years paying zero or almost zero income tax. You know, one year Jeff Bezos reports so little income that he says, 'Look, I'm quite poor,' so he claims family benefits and he receives family benefits, which in principle are supposed to be reserved, you know, for middle-class individuals. So we're talking about some of the wealthiest people in the world reporting little or zero income and paying zero income tax. How is that possible? Well, the way it works is when you're extremely rich, it's relatively easy to structure your wealth such that this wealth will generate little or no taxable income. So for instance, Bezos, when he was CEO of Amazon, he didn't pay himself a wage. Amazon doesn't distribute dividends. He didn't sell shares, and so he didn't realize capital gains. And that's what made it possible for him, at least in some years, to pay zero income tax. Same thing for someone like Elon Musk. So by avoiding dividend distributions and capital gains realizations, you can reduce your income to very low levels, okay? And you can also do that in a more sophisticated manner by using holding companies. This is what a lot of European billionaires do. They own shares in publicly listed companies that pay out dividends, but they can avoid paying the individual income tax because their shares are held on paper through a holding company, and so the dividends are paid to the holding company free of the individual income tax. And so that's what the graph here illustrates. It's the same type of graph as the first one that I showed, but just focusing on one tax, which is the individual income tax, you know, disregarding all other taxes. And you see that the individual income tax, well, yes, it's progressive for most of the population, meaning the effective tax rate rises with income up to a certain point, past which it becomes sharply regressive, and the effective rate collapses to low levels, you know, as little as 0% or close to 0% in France and the Netherlands, okay? So that's the issue that we face today. And so why is that a problem, you might say, okay, why do we care about that? Well, we care, number one, because there is a significant loss of tax revenue. So the taxes that the super rich don't pay, they have to be paid by other people, or there is less government spending, and so less spending on education, on health care, and infrastructure. So that's one thing. But second, and perhaps most importantly, this fuels the rise of wealth concentration, okay? So let me illustrate that with this chart here, which shows the evolution of the wealth of global billionaires from the mid-1980s to today, okay? So today, to fix ideas, according to the data that exist from magazines like Forbes magazine, there is about 2,900 billionaires globally, and that represents around one out of one million households globally is a billionaire household, okay? You have three billion households in the world, about 3,000 billionaires, so we're talking about the top 0.01% of the world population who is a billionaire, okay? And those billionaires, they own in wealth the equivalent of 14% of world GDP, okay? Now you can do that same computation looking at the wealth of the top 0.01% back in time, comparing that to world GDP, and that's the line here, that's the blue curve. And what the curve shows is that in the 1980s, global, the very top, the global top 0.01% owned in wealth the equivalent of 3-4% of world GDP, okay? So we've moved from 3-4% of world GDP to 14% of world GDP in wealth which is owned by billionaires. That's not a sustainable process, you know, this cannot go on forever. At some point, this needs to stabilize, all right? So back to the billionaires. How do we address this fundamental issue in our contemporary tax system that the super rich don't pay their fair share, which fuels the rise of wealth concentration? So in February of this year, I was invited by Brazil, that chairs the G20, to talk about these issues in a meeting of G20 finance ministers that was held in São Paulo at the end of February. And so I told them about this, you know, look, the super rich don't pay a lot in tax, and so on and so on. And Brazil, as chair of the G20, commissioned this report to make proposals to address the issue. So it's called a blueprint for a coordinated minimum effective taxation standard for ultra-high-net-worth individuals. It's a bit of a mouthful, but the idea is very simple. The idea is that countries should coordinate to put a floor to how low tax rates can go, how low effective tax rates can go for the super rich. The baseline proposal is quite simple. The baseline proposal is to create a minimum tax on the wealth of global billionaires equal to 2% of their wealth, meaning if you already pay in income tax the equivalent of 2% or more of your wealth, then you have nothing more to pay. But if you pay zero, like some of these US billionaires I described at the beginning, then you would have to pay an extra tax so that your total tax payments add up to 2% of your wealth. We're talking about 3,000 taxpayers globally, as I explained, so it's a very, very small population, but because it's very rich and because it doesn't pay a lot of tax today, the revenue stakes are quite large. You know, such a minimum tax could raise the equ— could raise about 200 to 250 billion dollars in tax revenue globally. So how big is that? Perhaps it's useful to compare that to what we need to face the challenges of climate change. According to the best estimates that we have, developing countries need an additional $500 billion in government revenue each year to face the challenges of climate change, and about half of that could be covered with a modest — it's a really modest tax — a modest 2% minimum tax on global billionaires, okay? So let me unpack this a little bit. First of all, why 2%? You know, where is that coming from, and how much of a difference would it make? Why do I say that this is a modest proposal? Well, if you look at high-income countries on average, very crudely, just the average of the US and the different European countries that I showed earlier, the black line shows the current effective tax rates for high-income countries on average, and the blue line shows how the curve would change if there was a 2% minimum tax for billionaires. So essentially what this tax would do is that it would erase the regressivity of our tax systems at the very top end, or to put it more clearly, it would ensure that billionaires don't pay less tax than the rest of the population. To be clear, it wouldn't make the tax system progressive, it would just avoid the regressivity that we observe today. So you can really see that as a kind of minimum standard that many, many countries and many individuals can agree with. There is, of course, lots of different views about what's the proper degree of tax progressivity. It's a very complicated question, but I think everybody or almost everybody agrees that it shouldn't be possible for the wealthiest individuals in the world, those with the highest ability to pay taxes, with the most economic and sometimes political power, to pay less tax than middle-class or working-class individuals. And so this proposal, this 2% minimum tax, would get rid of that issue. Now you might say, why only billionaires? We can see that problems would remain for the category just below. So there is a good case to extend the minimum tax to people with more than a hundred million US dollars in wealth, centimillionaires, as opposed to just billionaires. So if you do that, well, you can erase also the regressivity of our tax systems at that level of wealth, okay? So that's one thing, what the tax would do and why 2%. Now let me discuss a number of important concerns and issues and implementation challenges. So number one, why is it important to have international coordination on this issue? And I really want to emphasize that, and I hope that very soon many countries will come on board because we are really in a better position to tackle that issue if we do that cooperatively. Coordination is necessary because in practice the main obstacle to taxing the very rich is simply the risk that they might hide their income, some of their income, some of their wealth, or that they might move themselves, they might move their residency to relatively low-tax countries. And if you want to overcome that issue, you need two things. Number one, you need some exchange of information between countries, and number two, you need an international coordination on tax rates to avoid the risk of a race to the bottom, meaning to avoid the risk that some countries might offer very low or zero tax rates and attract the world's super rich thanks to that. Now the good news is that, and that's really important, the good news is that we now know that this is possible because in 2021, more than 130 countries agreed on a minimum tax of 15% for multinational companies. This minimum tax was deemed utopian 10 or 15 years ago. People thought, well, it's never going to be possible for countries to agree on a minimum tax rate, and indeed there had never been an agreement like that. But in 2021, this changed, and this is essential because it demonstrates that international tax competition is not some kind of law of nature. It's a choice that we've made collectively as interconnected nations since the 1980s, but we can make other choices. Instead of choosing competition, we can choose coordination, and we've started to go down that path for multinational companies. And in my view, now the time has come to apply that logic to the super rich. Just like we have a minimum tax for multinationals, a coordinated minimum tax for multinationals, we need and we can have a coordinated minimum tax for the super rich. Okay, let me clarify also that this coordinating minimum tax is not a wealth tax, but you should see that as staying in the realm of income taxation. And to understand that, note that if a billionaire pays sufficient income tax today, then that person would have no extra tax to pay. It's only those billionaires who pay very little income tax who would be affected by the proposal that I formulate. For them, a top-up would be applied to their income tax payment so that their total income tax payment reaches the agreed minimum, like 2% of wealth. To make this work, what is key is to define the minimum relative to something that's hard to manipulate. Income, as I explained at the beginning, is easy to manipulate. You can be super rich and report very little income, but wealth itself is very hard to manipulate. If you're a billionaire, you cannot claim that, you know, you're poor. And so technically, the tax that I propose is what is known as a presumptive income tax, meaning if you're extremely wealthy, you must be presumed to have a lot of income because in fact you do, and you have to be taxed based on this income. Let me also clarify that the idea is not to create some kind of global tax that would go to a new global fund or global organization. The idea is to create a common standard that countries could implement each of them flexibly in their own domestic legislation. So for instance, using a presumptive income tax or a tax on a broad notion of income. In the US, President Joe Biden has put in his budget what he calls a billionaire minimum income tax, which is very close in spirit to what I propose, except that it's not expressed as a fraction of wealth itself, but is expressed as a fraction of a broad notion of income, including unrealized capital gains, or it could be structured as a wealth tax. Any of these domestic implementations would work as long as the super rich meet the minimum standard as a result. Okay, so now let me discuss, and that's going to be the last part of my presentation, let me discuss the main implementation challenges, the main obstacles to making this work in practice, and also how these challenges could be addressed. So number one is the question of wealth valuation. Every time you talk about basing some tax on wealth or using wealth as a reference, then one objection is, oh, but how do you measure wealth? And it's true that if wealth is as manipulable as income, then the minimum tax that I propose would be ineffective. But what research shows is that for global billionaires, about half of their wealth corresponds to shares in publicly listed companies, companies listed on a stock market, for which by definition valuations are readily observable. The other half is primarily large stakes in big private companies, meaning unlisted companies. But by definition, because we're talking about super rich people, about billionaires, the businesses they own are big companies, and we know how to value big companies. That's what thousands of financial analysts do all the time in New York, in London, everywhere. You look at how similar companies are valued by the stock market. And then you might say, well, but what about the Picassos? What about the yachts? What about things like that? And yes, sure, they exist, but they're just not quite as important as shares in companies. They just don't account for a big fraction of wealth at the very top. And we also know how to value those things. If you own a Picasso, and I'm sure that's the case for many of you in the audience, if you own a Picasso, it has an insurance value. You're going to want to insure that piece of art, and so that insurance value can be used to value wealth. The bottom line is that even with imperfect valuations, having a minimum tax expressed as a fraction of wealth would be a massive improvement over the status quo. Let me discuss the second main issue, which is, okay, how do we know who's a billionaire in the first place? How can we overcome the financial opacity that exists in the world? We know about tax havens, we know about shell companies, we know that there's a lot of wealth that's hidden. So how really can we identify these taxpayers? And what I want to say here is that just like tax competition is not a law of nature, tax evasion also is not a law of nature, and we can build on recent progress to improve tax transparency even further. So since 2017, there is an automatic exchange of bank information across countries on bank accounts. That exchange of information could be extended to real estate and to other assets. For instance, since 2016, countries also exchange data on the country-by-country reports of multinational companies with very detailed data on these multinational firms. We could make this data even more complete by asking companies to list their main owners. Let's say anyone who owns more than 1% of the share of a company should be listed in those documents. And because most of the wealth of billionaires corresponds to shares in multinational companies, that would create immediately tremendous transparency about global billionaire wealth. Okay, so let me now finish with what is the most important challenge and the most difficult issue, and the one that requires the most careful process. It's the question of imperfect coordination. You know, what happens if some countries decline to join such an agreement? Let me start by saying that these ideas, you know, I presented this proposal about six months ago, and in just six months we've already made a lot of progress. Many countries and governments have come on board publicly expressing support for this idea of having a minimum tax on the super rich. But obviously we're still very far from any kind of global agreement. And look, nobody believes that in the current geopolitical context there is a high chance of a truly global agreement in the foreseeable future. So does it mean that this is kind of dead on arrival, that this is impossible to implement? Not at all, not at all. Of course, global participation would be ideal, but what's very important to understand is that it is not necessary. The minimum tax that I described could be implemented by any country or any group of countries. And what's needed to make it work is to provide incentives for other countries to join the agreement. And how do you provide incentives for countries to join the agreement? Well, look at how this works for the minimum tax on multinational companies. In the minimum tax on multinational companies, 130 countries have agreed to it, but not all countries are implementing it. For instance, the US is not implementing it. Does it mean that US multinationals are not going to pay 15%, will be able to pay less than 15% of their profit in tax? Not at all, because the countries that implement the agreement have the right to overtax US multinationals to ensure that they face a minimum tax rate of 15%. That's in the international agreement on the minimum tax on multinational companies. You could describe that mechanism as a kind of tax collector of last resort mechanism. Fundamentally, that's what we need to make these agreements work in practice. What this means is that if some country declines to tax its own multinational companies or declines to tax its own billionaires, well, that's its choice, fine. But what other countries can do is they can say, well, we are going to collect the taxes that you choose not to collect. If you don't tax your multinationals and they have access to our markets, they have employees in our countries, they have assets, then we are going to collect the tax that you don't collect. If you decline to tax your billionaires, but they derive some of their wealth from having access to our market, we are going to tax these billionaires if you don't do it, okay? So that is fundamentally important, and this is what can make these agreements work in practice, even if some countries choose not to join them, because it would mean that other countries would just overtax the undertaxed billionaires to make sure that they also face the common minimum tax rate. Okay, so let me conclude by saying that a coordinated minimum tax on the super rich is a powerful and, in fact, when you think of it, the most effective option to safeguard tax progressivity at the top of the income distribution. And we can build on recent progress that's been made in that area. Recent progress in international cooperation today make it possible for such a tax to work in practice. It has become technically feasible, and it could be enforced successfully. So thank you very much, and I very much look forward to your questions.
