Is the global minimum tax “never going to be Respectable”?

Originally published: April 2024

In 1987, Mel & Kim did a song called Respectable (https://lnkd.in/euSWanvv), in which they vowed that they were never going to be respectable. The lyrics sound quite tame. The point that Mel & Kim missed is that being “respectable” is not so much about what you do, but what the world thinks about you.

A few days ago, I discussed how radical Gabriel Zucman’s global minimum tax for individuals really is (https://lnkd.in/e98cPCjZ). A few years ago, this would not be respectable (ie it would be outside the Overton window (https://lnkd.in/e_4wHCVK). But now, the G20 has asked for a more detailed proposal. Is it a brief flirtation or does the plan have chance of success?

It has initial support by Brazil, France, Netherlands (https://lnkd.in/eVPGK5Rm), Spain (https://lnkd.in/e-bB-yXB) and more will announce “very soon” (https://lnkd.in/epTfYZJm). Brazil sees this plan as extension of the UN, but the UN drafted (not very advanced) model rules for a competing global wealth tax (https://lnkd.in/eW7zf3qV https://lnkd.in/ef5eHfXN). Leading tax activist NGOs supported that too, confusingly describing it as the same tax (https://lnkd.in/ea722ctF https://lnkd.in/e28dgmNg). A few years ago, the OECD floated an idea for a billionaires tax (https://lnkd.in/e9RrRAp5), but that seems to have gone nowhere.

So, for now, the new tax seems almost fully developed by Zucman and organisations he is part of (eg EU Tax Observatory, World Inequality Lab, ICRICT). That raises doubt on the political acumen or drafting skills needed to appeal to a wide range of countries. His natural support seems with developing countries. You can imagine EU falling in line and who knows what the UK would do after its elections. The next set (eg Aus, Can, Jap, Kor) already looks more difficult.

But is there a path to US support? Biden has proposed a billionaire tax on unrealised gains in the last 3 State of the Unions, but that’s based on income (not wealth, like Zucman’s plan). If Biden wins re-election and the US Supreme Court does not impose constraints (https://lnkd.in/epEwKZig), can he use a global tax deal to push through a US domestic tax reform (as he tried to with GILTI reform and Pillar 2)?

History is unlikely to repeat the pattern for Pillar 2 so neatly. More likely, the plan will fail to get wide support, particularly from typical billionaire countries such as US, China. Then, countries can consider going unilateral. An earlier draft by the EU Tax Observatory (October 2022) explicitly positioned the tax as “unilateral”. The detour through the G20 would then allow countries and people to get used to idea. So, if it is rejected but not firmly so, it can emerge in another form. So, the question now is not just if this tax should be adopted, but if it is an acceptable policy option for countries to pursue.

Obvious disclaimers: this is not advice. These views are my own and do not necessarily represent my employer.

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