The proposals designed, so their authors say, to thwart evasion and forms of avoidance, raise questions about a possible challenge to political and legal sovereignty of specific countries, the proper constraints on the powers of even democracies to tax citizens, competition of jurisdictions, and more.

An institute that tracks and comments on tax policy argues that a global minimum tax should be imposed on the world’s richest people to curb tax evasion and forms of avoidance, mirroring the drive by the Biden administration for a minimum corporate tax of 15 per cent.

The call, which comes from the EU Tax Observatory, is made in a 91-page report in which it said that while certain types of tax evasion have been hit via tax information sharing between countries, amnesties and other measures, billions of dollars still leak into low/no-tax jurisdictions. 

A key proposal is to institute a "global minimum tax on billionaires, equal to 2 per cent of their wealth,” an executive summary of the report said. The organization said the report will raise almost $250 billon from fewer than 3,000 individuals per year. “A strengthened global minimum tax on multinational companies, free of loopholes, would raise an additional $250 billion per year.”

Such a demand is unlikely to be popular with some in offshore or even certain onshore jurisdictions where a move to impose minimum global taxes is a serious erosion, so it would be argued, of political and legal autonomy. An objection will also be that tax competition between countries to attract capital and entrepreneurs constrains the ability of otherwise tax-and-spend policies that generally damage growth. In the past, calls for minimum global taxes have been likened by groups such as the Washington DC-based think, tank, the CATO Institute, to the creation of a global “cartel” that will stymie growth and encourage attacks on wealth and enterprise. Against that argument is the claim – as made by this new report – that without some kind of global pact, democratically elected governments are powerless to enforce tax fairness and pay for public services. 

In the introduction to the report, Columbia University economics professor and Nobel Laureate, Joseph Stiglitz, said: “Tackling tax evasion and harmful tax competition are particularly essential in the current context. The coronavirus crisis exposed and exacerbated the global inequality crisis. The unfolding climate crisis will require unprecedented public efforts and investments. So many people struggle to make ends meet yet pay the taxes their governments ask of them. We need to make sure those at the top of the income ladder who certainly have the financial means don’t wriggle out of them.”

Hundreds of billions
The EU Tax Observatory report said: “to give a sense of the magnitudes involved, recent studies estimate that developing countries need $500 billion annually in additional public revenue to address the challenges of climate change.” 

“A key message of this report is that tax evasion is not a law of nature but a policy choice. As interconnected nations we can choose free-for-all policies that allow it to fester, or we can choose coordination to curb it. It is also possible to make major progress through unilateral action, should ambitious global agreement fail,” it said.

“Before 2013 [when intergovernmental tax information sharing deals kicked in], households owned the equivalent of 10 per cent of world GDP in financial wealth in tax havens globally, the bulk of which was undeclared to tax authorities and belonged to high net worth individuals. Today there is still the equivalent of 10 per cent of world GDP in offshore household financial wealth, but in our central scenario only about 25 per cent of it evades taxation. This reduction in non-compliance is a major success that shows that rapid progress can be made against tax evasion if there is the political will to do so,” it said.

The reference in the report to the need to raise hundreds of billions of revenues for policies such as Net Zero, show how energy transition, as well as the rising costs of an aging population in many nations, are putting public finances under strain, adding to the aftershocks of the pandemic and the 2008 financial crisis.

In Europe and North America there have been calls for a wealth tax on the rich, although critics say these taxes can be expensive to collect, intrusive of privacy and destructive of capital, which is ultimately destructive of economic growth. In most cases where such levies were imposed (Sweden and France, for example), they have been subsequently repealed, although not in all cases.

In the UK, the opposition Labour Party, which is far ahead of the ruling Conservative Party in the opinion polls, has called to end the UK’s resident nom-domiciled tax system that is used by foreign-born high net worth individuals. As the political landscape has changed, the number of such “non-doms” has shrunk.

States such as New York and California have gone after the use of out-of-state trusts as a way of discouraging local taxpayers from trying to shelter income and wealth, a situation that has gotten more acute as more Democrat-leaning states have raised taxes, and lost the former deductibility of state and local tax from federal taxes.

One of the EU Tax Observer’s missions, it says on its website, is “to promote a democratic, inclusive, and pluralistic debate on the future of taxation by fostering dialogue between the scientific community, civil society, and policymakers in the European Union and worldwide.” It is co-founded by the European Union, and according to its website, partners with groups such as the Finnish Centre of Excellence In Tax Systems Research, DIW Berlin, Center for Economic Behavior & Inequality, Skatteforsk Centre For Tax Research, University of Copenhagen and Paris School of Economics, and World Inequality Lab. The organization says it is co-funded by the European Union.

(Editor's view: My initial reaction to this sort of report is skepticism, but I do understand that there appears to be an issue around perceptions that the wealthiest individuals appear to be able to avoid taxes on a major scale. That claim is contested.

What appears particularly challenging is agreeing on global minimums for tax when this is a core issue for national legislatures. Agreeing not to reduce tax below a certain amount looks undemocratic. It looks like a "cartel". Emerging market countries, for example, might want to set low taxes to encourage capital inflows. There is also the point that, in a world where more financial transactions are digital, and bank secrecy has gone in Switzerland for international purposes, there are fewer hiding places anyway. 

Even so, there are concerns that perceptions of unequal treatment and unfairness matter.There is the argument, made by the writer Adrian Wooldridge, for example, that if we want the free enterprise system to flourish, people need to sense that the basic rules are fair. Much political populism has been fueled by a belief that the rules are anything but.)