The decline in effective tax rates at the top of the income distribution A gap in official economic statistics globally is the lack of information about the effective tax rates of ultra-high-net-worth individuals. [...] For instance, in France, the working class (which can be defined as individuals in the bottom 50% of the income distribution), the middle-class (the next 40%), the upper-middle class (the next 9%) and even most of the top 1% have effective tax rates close to the macroeconomic tax rate of 52%. [...] One of its goals is to offset the regressivity of indirect taxes, such as the VAT, which absorb a higher fraction of income at the bottom of the income distribution than at the top. [...] The regressivity starts around the 95th percentile of the pre-tax income distribution in the Netherlands, the 99.9th percentile in France, and the 99.99th percentile in the United States. [...] I first estimate the effective income tax rate of centi-millionaires as a fraction of their pre-tax income by taking the average effective income tax rate of the P99.99-P99.999 and P99.999- P99.9999 groups in Europe and in the United States (where Europe is the arithmetic average of France and the Netherlands) using the data reported in Figure 2.
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Table of Contents
- Foreword 5
- Executive summary 6
- 1. The progressivity of contemporary tax systems 9
- 1.1. The decline in effective tax rates at the top of the income distribution 9
- 1.2. Why does the income tax fail at the top end? 12
- Avoidance of dividends and capital gains realization 12
- Use of holding companies 13
- 1.3. Effective taxation and the dynamics of global billionaire wealth 15
- The regressivity of contemporary capital tax systems 16
- The dynamics of global billionaire wealth 18
- 2. A proposal for a coordinated minimum taxation standard 20
- 2.1. Baseline proposal: a 2% minimum tax on global billionaires 20
- 2.2. Coordination while respecting national sovereignty 21
- Presumptive income taxation 22
- Wealth taxation 22
- Income tax on a broad notion of income 23
- The value of flexibility 24
- 2.3. Tax revenue estimation 24
- Baseline proposal: 2% tax on billionaires 24
- Extending the tax to centimillionaires 25
- Revenue potential with different minimum tax rates 26
- 2.4. A tool to safeguard tax progressivity 28
- 3. The value added of international cooperation 30
- 3.1. Avoiding a race-to-the-bottom 31
- 3.2. The complementarity between national and international action 32
- 4. Implementation challenges 33
- 4.1. Wealth valuation 33
- 4.2. Overcoming financial opacity 34
- Addressing the risk of wealth concealment 34
- Identifying beneficial owners 35
- 4.3. Dealing with imperfect coordination 37
- Strengthening mechanisms to limit tax-driven mobility 37
- Providing incentives to join the agreement 38
- 5. Other options for a more effective taxation at the top 40
- 5.1. Tackling avoidance and regulating harmful tax practices 40
- 5.2. A more progressive income tax 41
- 5.3. A more progressive inheritance tax 42
- Conclusion: Towards a more sustainable globalization 43
- References 44
- Appendix A: Methodology for effective tax rates 47
- Appendix B: Methodology for simulations of reforms 48
