“Billionaires should not pay a lower tax rate than teachers, sanitation workers and nurses,” Trump said in his State of the Union address last week.
The plan, previously outlined in the president's fiscal 2024 budget proposal, has reignited a decades-old debate over how to best account for the wealth of the world's richest people.
But the issue has taken on new importance this year as governments around the world seek new ways to replenish dwindling public finances and tackle wealth inequality.
This is about the wealthy giving more — the very wealthy giving more — and being proud of it.
Phil White
Retired business owner and member of Patriotic Millionaires
Last month, finance ministers at the G20 summit in Brazil announced they were considering plans to impose a global minimum tax on the world's richest 3,000 people, to ensure that the ultra-liquid 0.1% pay their fair share of society's burden.
These ideas are also supported by the world's wealthy. Earlier this year, a growing network of so-called “patriotic billionaires” signed an open letter to world leaders calling for higher taxes on the wealthy. Disney heiress Abigail Disney and “Succession” star Brian Cox were among the 260 signatories.
“This is about the wealthy giving more to society, the super-wealthy giving more and being proud of it,” retired business owner and patriotic billionaire co-signer Phil White told CNBC.
But experts are divided on the effectiveness of a wealth tax and how achievable it would be in practice.
A wealth tax is a “broad-based” tax levied on the value of all or most of the assets belonging to a wealthy individual or household, including cash, real estate, vehicles, jewelry, and other valuables.
Unlike income tax, which is levied on annual income, or capital gains tax, which is levied on profits made from the sale of assets, wealth tax is considered a more comprehensive way of calculating an individual's total wealth.
Such tax systems were once mainstream in Europe but their use declined in the 21st century amid questions about their efficiency and a broader move to lower top tax rates.
Wealth taxes were once an important source of tax revenue in Europe, but their implementation has declined in the 21st century.
CNBC
As of 2024, Switzerland, Norway, and Spain are among the few countries that impose some form of wealth tax, but more countries are starting to warm to the idea: Colombia will introduce a wealth tax in 2022, and the Scottish government is also pushing ahead with a proposal.
According to Arun Advani, an associate professor of economics at the University of Warwick, the most effective wealth tax policies are targeted and specific.
“If you want a wealth tax to actually work on high earners, you usually have to start at a pretty high threshold,” Advani said, noting that historically, policies that have been repealed had thresholds that were too low or had too many exemptions that didn't raise enough revenue.
But tax experts say even well-designed wealth tax policies would be difficult to implement in practice, raising questions about which assets should be taxed and who should be responsible for assessing their value.
Indeed, the potential for behavioral change is one of the most powerful arguments against a wealth tax: Critics say it would increase the risk of asset flight among the ultra-rich, who have more liquid assets, including to tax havens, undermining the original effort to boost government coffers.
Business owners are being forced to leave the country, this has had a huge impact on a lot of people, myself included, and it's just not sustainable.
Tord Kolstad
Founder and CEO of T. Kolstad Eiendom
“If a wealth tax is introduced, individuals will certainly be looking to other countries to see whether there is merit in relocating,” said Christine Cairns, personal tax partner at PwC.
Many flocked to Switzerland after Norway raised its wealth tax on residents with assets over 20 million Norwegian kroner ($1.8 million) in 2022. Entrepreneur Tord Kolstad was one of about 70 Norwegian ultra-rich people who moved there in 2023.
“All of a sudden, they doubled this tax. This is why Norwegian business owners are being forced to leave the country. This has had a big impact on a lot of people, including me, and it's not sustainable in the long term,” said Kolstad, founder and CEO of Norwegian real estate group T. Kolstad Eyendom.
Data shows that in countries where wealth taxes are in place, they account for only a small proportion of total tax revenues.
CNBC
Researchers are divided on the risks of capital flight from wealth taxes, with some arguing that any cash outflows would be limited, but other concerns have been raised about the costs of such policies and their ability to redistribute wealth.
Data shows that in countries where wealth taxes are in place, they account for only a small proportion of total tax revenues, and in many cases, these revenues have not increased significantly over time.
“There will be additional costs on the part of the tax authorities as they will certainly have to do additional assessments,” Advani said. “Another area of cost to be concerned about is how it will impact, for example, investment incentives.”
Still, supporters argue that the revenue generated from a wealth tax could be a big step in fighting wealth inequality.
According to Oxfam, global wealth inequality has increased significantly in recent years, with the richest 1% of people controlling two-thirds of all new wealth created since 2020. The poorest 50% of the world's population now own just 2% of total net worth, while the richest 10% own 76%. Of that, the richest 1% owns roughly two-thirds.
Biden's proposal would raise the average tax rate for America's 1,000 billionaires from 8.2% to match the 25% paid by the average American worker, raising the tax rate by 25% for the average American worker by 25%.
A 2023 report from the EU Tax Observatory, an independent research body that supports calls for a global wealth tax, found that just a 2% tax on the world's 2,756 billionaires could raise $250 billion a year.. Another Oxfam report, published in 2023, suggested that a 5% tax on the world's billionaires and ultra-rich could raise $1.7 trillion a year, lifting 2 billion people out of poverty.
Groups like Patriotic Millionaires say that's part of their stated objectives. A 2024 poll by Patriotic Millionaires found that more than half (58%) of billionaires in G20 countries support a 2% tax on wealth above $10 million. Three-quarters (74%) said they would support higher taxes on the wealthy in general.
But some question whether such calls can protect the world's wealthy from more radical wealth redistribution in the future.
“You know, there are people who debate the idea of libertarianism very seriously and say there should be a limit to the total amount of wealth people should be allowed to have, and above that level you should basically be taxed 100%,” Advani said.
