A tax on the world's richest people

Brazil has proposed a 2 per cent tax on the world’s billionaires, a plan supported by governments in South Africa, Germany, and Spain. According to Forbes, there are currently 2,781 billionaires worldwide, an increase of nearly 600 per cent over the last 20 years.

The world’s billionaires have a combined total wealth of $14.2 trillion, and it is estimated that a 2 per cent tax would raise $260 billion. A sum of this size would make a significant contribution to reducing the number of children in absolute poverty, or it could be invested in schemes to reduce climate change.

Brazil’s proposal will be raised at the G20 summit in Rio in November. To be successful, the world’s governments need to cooperate so the assets of the world’s richest people cannot simply be moved to a country that does not charge a wealth tax. However, US Treasury Secretary Janet Yellen has dismissed the proposal, so the wealth tax is going to face significant challenges.

Income and wealth data suggests billionaires are very good at managing their wealth and income to pay low tax rates. They can employ the best accountants and lawyers and move their money between different countries, which means they can pay very low rates of tax.  

The investigative news group ProPublica estimates that Elon Musk (wealth of $226bn) pays 3.7 per cent tax and Jeff Bezos (wealth of $187bn) less than 1 per cent. The average rate of tax paid by US citizens is 36.75 per cent. Many people see this as inequitable, and the billionaire tax is viewed as a way of redressing some of this unfairness.

The arguments against the 2 per cent wealth tax range from billionaires not being as motivated to create the income and employment that benefits the wider population to government inefficiency in collecting and spending the tax revenue raised.

The key to the success of this tax is international cooperation, effective tax collection, and efficient spending of the tax raised. Although many business people, economists, and politicians see this tax policy as a potential way of raising funds to combat some of the world’s most challenging problems, its application is going to be difficult.

Possible questions to discuss with a class

1. How do you think a 2 per cent wealth tax on billionaires might work?

2. How do you think the money raised by the wealth tax on billionaires could be used?

3. What do you think the problems of applying the wealth tax on billionaires might be?

4. Research into the life of a billionaire. Discuss how their life might be affected by a 2 per cent tax.