We are quickly approaching a busy time for tax policy. An upcoming presidential election, the expiration of many Tax Cuts and Jobs Act (TCJA) provisions, and ongoing global tax discussions means that a number of tax issues will undoubtedly arise in 2025. One seemingly far-fetched tax idea that intersects with all of these geopolitical uncertainties is a global wealth tax, which could soon go from a few fringe economists' pipe dream to international law.
The G20 recently proposed a global wealth tax of 2 percent that would apply to individuals with $1 billion in wealth. The structure of the tax came from a study that was commissioned by Brazil in its role leading the G20 and was written by economist Gabriel Zucman, a vocal proponent of wealth taxes. This proposal has been endorsed by the finance officials from Brazil, Germany, Spain and South Africa in a comment piece in The Guardian. President Joe Biden and France’s President Emmanuel Macron jointly expressed support for the proposal at the G20 Finance Ministers meeting in July, and the G20 consensus Declaration committed to ensuring the wealthy are effectively taxed.
We have written extensively about the potential harms and overall impracticality of domestic wealth taxes, as the policy has been repeatedly included in the the Biden-Harris Administration’s budget requests. Wealth tax legislation is also championed by Senator Ron Wyden (D-OR), as well as Senator Elizabeth Warren (D-MA), whose proposal was developed in part by the same economist assisting with the G20 plan. Some of the many reasons why wealth taxes are unworkable in the U.S. are their unconstitutional nature, their high administrative burdens to calculate and enforce, and their detrimental impacts on both private businesses and charities. Furthermore, wealth taxes are estimated to raise little revenue and would push high-income taxpayers to other tax jurisdictions. These issues also plagued European countries that attempted to adopt wealth taxes in the past—many of which were ultimately repealed.
The G20’s proposal for a global wealth tax tries to address only what is arguably the least problematic of these proven wealth tax pitfalls, and does even that poorly. The report claims that “a common standard would limit the risk of tax-driven mobility,” yet the author also says that not all countries would have to adopt the policy. Instead, only a critical mass of countries would have to adopt the tax, which obviously implies that the U.S. would need to adopt it. We know that this is the case because that is exactly what is happening with the OECD and G20’s Two-Pillar Solution, where adoption by the U.S. is required for Pillar One to go into effect. Essentially, this would amount to a global punishment scheme for American innovation and economic prosperity.
The two-pillar plan negotiated by the OECD and G20 together through the “Inclusive Framework” continues to show the infeasibility of global tax agendas. Consensus has yet to be reached on Pillar One, the reallocation of taxing rights, long past its June deadline. Meanwhile, Pillar Two’s global minimum tax faces a lack of worldwide adoption, poses serious dispute resolution issues, and amounts to little more than a pure compliance exercise according to industry experts. In their piece in The Guardian, the finance ministers supporting the global wealth tax refer to it as the “third pillar,” which likely foreshadows the fact that it will be as underwhelming and ineffective as the first two pillars.
The fate of the global wealth tax will ultimately depend on a variety of factors, but its chief architect remains optimistic. Gabriel Zucman writes that “there is no going back,” now that the G20 has recognized it as a priority, citing the build-up of a global minimum tax since 2013. But there is no reason at all to view tilting at Zucman’s personal windmill as inevitable, as even congressional Democrats avoided implementing wealth taxes when they had the chance with the Inflation Reduction Act. Congress should not be bullied into awful tax policy by foreign nations seeking to drag American innovation down into their preferred morass of overtaxation and bureaucracy.