Calls for a wealth tax on the world’s super-rich are once again gaining attention after U.S. President Joe Biden said he would impose a new “billionaire tax” on the country’s wealthiest if re-elected in November. Outlining his 2025 budget proposals on Monday, Biden took aim at the uber affluent and reiterated plans for a 25% tax on Americans with a wealth of more than $100 million.
The Concept of a Wealth Tax
A wealth tax is a “broad-based” tax on the value of all — or most — of the assets belonging to a wealthy individual or household, such as cash, property, vehicles, jewelry and other valuable items. Unlike income tax, which is charged against annual earnings, and capital gains tax, which is imposed on profits accrued from the sale of an asset, wealth tax is seen as a more holistic way of accounting for an individual’s total wealth.
As of 2024, Switzerland, Norway, Spain, and are among the few countries to impose some form of wealth tax. But more countries are coming around to the idea. Colombia introduced a wealth tax in 2022, and the Scottish government is among others to have touted proposals.
Experts are divided over the effectiveness of a wealth tax and how achievable it is in reality. Tax specialists note that even well-designed wealth tax policies can be hard to enforce in practice, with questions arising over which assets should be taxed and who should be responsible for evaluating their value.
Risks and Concerns Associated with Wealth Tax
Critics point to the increased risk of a wealth exodus among the highly mobile super-rich, including to tax havens, which they say undermines original efforts to boost government coffers. Data suggests that a wealth tax accounts for only a very small proportion of total tax revenues in the countries where it has been applied, and revenues have failed to increase much over time.
Proponents argue that the revenues generated from a wealth tax could mark a major step in combating the wealth gap. Global wealth inequality has risen significantly over recent years, with the richest 1% bagging two-thirds of all new wealth created since 2020.
Under Biden’s proposals, a 25% tax on those with over $100 million would raise $500 billion over 10 years to help fund benefits such as childcare and paid parental leave. Even a 2% tax on the world’s 2,756 known billionaires could raise $250 billion per year, according to a 2023 report from the independent research lab EU Tax Observatory.
The debate over the feasibility and impact of a wealth tax continues to spark discussions globally. While there are proponents advocating for a wealth tax as a means to address wealth inequality, critics raise concerns about its effectiveness and the potential for capital flight. As governments and policymakers navigate this complex issue, finding a balance between taxation, redistribution, and economic incentives will be crucial in shaping future tax policies.
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