A practical proposal to fight tax evasion: For an international tax on the wealthiest citizens of the world
As the gap between the wealthiest 0.1% of the population and the rest has increased, there have been proposals in Europe and in the United States that would impose a tax on the highest class members of society. However, these proposals disregard the ability of wealthy individuals to change their country of residence and citizenship in order to avoid paying such taxes.
For example, recent studies reveal that while 28 billionaires live in Switzerland, only 11 are in fact Swiss nationals; similarly, only one of four billionaires residing in Monaco is a citizen of the principality.
While there have been efforts by the G20 (via the Global Forum on Transparency and Exchange of Information for Tax Purposes) and the United Nations (via with the Committee of Experts on International Co-operation in Tax Matters) to tackle tax evasion on an international scale, little progress has been made.
This article proposes that an international wealth tax should be imposed on the world’s wealthiest individuals regardless of their citizenship. An international treaty imposing such a tax would not infringe on the right of human beings to enjoy a citizenship, not to be deprived of it, to shift citizenship and even to enjoy multiple ones. It would, however, disincentive the world’s wealthiest individuals from changing their residence and citizenship for the sake of avoiding taxes and would lead to a more equal and just global community.
European countries use a modified territorial system of taxation, under which income earned outside the territory is not subject to tax. The incentive for wealthy citizens, therefore, is to become resident in a country with a low tax burden while retaining citizenship in whichever European country they wish.
In the United States, taxes are based on nationality rather than domicile. Rather than changing residence, the ultra-wealthy in the United States renounce their citizenship in order to avoid paying taxes. Since 2008, the number of Americans who have voluntarily renounced their citizenship has increased more than six fold (from 238 in 2008 to 1534 in 2010).
Imagine a 1% wealth tax on the 1,210 billionaires of the world. In 2011 it would amount to $45 billion.
Two possibilities: If the billionaire’s total tax bill from his country of citizenship or country of residence is greater than 1% tax, the billionaire doesn’t pay. But, if after paying his taxes, the billionaire has payed less than 1% of his fortune, he will owe the rest of the total.
If an individual had changed nationality, is a citizen of more than one country, or does not reside in his country of nationality, proceeds from the tax would be distributed according to the number of years the individual has enjoyed each nationality. For example, if an American becomes Swiss at the age of 49, the following year 49/50 of the proceeds would accrue to the United States while 1/50 of the proceeds would be allocated to Switzerland.
The tax would be levied by the state in which the billionaire resides or — in case of refusal or failure — by any other UN member state that is a party to the treaty. It would benefit the community of nation states as a whole. First, countries with billionaire nationals would profit from increased revenues. Since these revenues would be derived from international cooperation, it could be agreed that the proceeds from the tax would go in priority towards the state’s participation in international organizations such as the United Nations, the World Bank, and the International Monetary Fund.
If the amount of tax levied exceeds the amount of the contributions due by a nation state, the surplus could be used to pay off any debts the nation state owes to these international organizations. Any remaining proceeds could be allocated to funding agencies that have an international focus, such as funding development efforts abroad or reducing negative environmental impacts. By largely paying for those countries’ participation in international organizations, the tax on billionaires would free up tax revenues for domestic uses. Second, countries without billionaire nationals would benefit from stronger international organizations and effective international cooperation.
Lastly, individuals would be disincentive from changing their country of residence and/or nationality for the sake of avoiding taxation. Naturally, states that currently serve as tax havens for wealthy individuals will be inclined not to sign a treaty imposing an international tax on billionaires. However, individuals subject to the tax would have to satisfy their obligations under the treaty in order to travel to treaty states. Without paying the tax, they would be limited to traveling between non-treaty states.
Ultimately, those negatively impacted by the international wealth tax would be the world’s wealthiest citizens and tax haven states, which would likely become less attractive. But hasn’t the time come?