[Usual Caveat: AI Generated translation (with slight edits) of a piece written in Italian]

The distribution of income has become topical again in recent days, and it is likely going to be one of the issues that will characterize the debate on the global governance of the economy in the coming months.

First, U.S. President Joe Biden announced a plan to reduce public debt centered on raising the minimum corporate tax from 15% to 21%, and on a minimum income tax of 25% for billionaires. The announcement is especially significant because it was made in the traditional State of the Union address, a solemn moment that this year also marks the beginning of the election campaign for the November elections. It is no coincidence that Biden has decided to call on the super-rich and corporations, especially the largest, to contribute the most to public finances’ healing: they are in fact the two categories that have managed to offload most of the inflation of recent years on consumers, wages and the less well-off categories in general.

The plan is highly unlikely to become a reality in a Congress dominated by a radicalized Republican Party, united behind Donald Trump, and conservative Democrats. But its symbolic significance is important and makes it clear what interests the president intends to defend in the November elections. With this proposal, the Biden administration proves once again, at least as far as economic issues are concerned, to be the most progressive in recent decades, much more courageous in attempting to protect the middle classes than the iconic, but ultimately too timid, Barack Obama.

A minimum tax rate for the super-rich

The issue of tax justice, and this is the second piece of recent news, is also at the center of the agenda of Lula’s Brazilian government, which in 2024 holds the rotating presidency of the G20. The G20 is probably the most significant body today for the coordination of economic policies at the international level. It is therefore particularly significant that the idea of reintroducing more progressivity by taxing the super-rich, which is not new in itself, is being discussed there.

In front of the G20 finance ministers that were meeting in São Paulo, the Berkeley economist Gabriel Zucman pleaded for  a fairer global system, first of all insisting on how tax progressivity, being crucial for financing public goods such as health, education, infrastructure, is one of the pillars on which the growth and the social contract of well-functioning democracies are based. Second, documenting how the tax systems of most countries have, in recent decades, become fundamentally regressive, especially with regard to the few thousand super-rich that sit at the top of the income distribution. In France, for example, the poorest 10% of the population pays almost 50% of their income in taxes, while the super-rich pay less than a third (the figure is taken from the 2024 Global Tax Evasion Report).

The reasons for this aberration are well known: the unbridled rush of recent decades to fiscal dumping, the benefits offered by many countries to multinationals and higher income owners in an attempt to attract them, have created a multitude of tax niches and possibilities for the wealthier to structure their income and their fortune in such a way as to generate low or no taxable incomes.

Precisely to avoid fiscal competition between countries, which allows the wealthier (but also multinationals) to travel in search of tax havens, Zucman and others are pushing for a global solution, along the lines of the BEPS agreement reached at the OECD in 2021 on the taxation of multinationals. For this reason, the initiative of the Brazilian presidency and the decision of the G20 finance ministers to commission a report that goes into the details of the proposal are very good signs.

Beyond the details that will need to be worked on, crucial to avoid loopholes and avoidance, the proposal by Zucman the economists of the Tax Observatory he heads, on which the G20 will discuss in the coming months, is that of a minimum rate of taxation on the super-rich, designed taking as a model the aforementioned OECD agreement on the minimum rate for multinationals. Since income, for the reasons mentioned above, is very difficult to compute, the international community should agree that taxpayers pay at least a certain percentage of their wealth in income taxes (Zucman proposes 2%). The proposal has several advantages: (1) those who already pay high income taxes would not have any additional burden, while those with large wealth that manage to hide their income from the tax authorities (in a more or less legal way) would be called upon to pay. (2) in many countries there are already instruments for assessing wealth, which would therefore only need to be generalised and harmonised. (3) as with the minimum tax on multinationals, mechanisms can be devised to discourage the relocation of wealth to countries that decide not to cooperate. (4) even with just a low rate like the one proposed by Zucman, it would be possible to obtain tax revenues of hundreds of billions a year, which are needed above all by the poorest countries to finance welfare, ecological transition, and infrastructure for growth.

Last, but certainly not least, being able to get the richest to contribute to the common good would help at least in part to restore the sense of justice and trust in the social contract that has progressively eroded in recent decades. As Zucman concludes in his address to the G20 ministers, “Such an agreement would be in the interest of all economic actors, even the taxpayers involved. Because what is at stake is not only the dynamic of global inequality: it is the very social sustainability of globalization, from which the wealthy benefit so much.”

The conservative revolutions of the early 1980s ushered in an era in which the watchword was simply “get as rich as you can and think only of yourself” (exemplified by Gordon Gekko’s praise of greed in Oliver Stone’s masterful Wall Street). That era did not bring us the promised prosperity or stability. On the contrary, we now live in sick democracies, unstable economies characterized by intolerable levels of rent seeking and inequality. In the 1930s, one of Keynes’s goals in pleading for an active role of the government was to save capitalism, in crisis and threatened by the rise of the Soviet Union. The many who are in love with the supposed Great Moderation of the 1980s and 1990s stubbornly opposing all attempts to correct excessive inequality, should think twice. Instead, they should endorse wholeheartedly attempts such as that of the G20 Brazilian presidency to save capitalism above all from its internal enemies, far more dangerous than the external ones.