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

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."