2024 brings a steady stream of difficult news for the wealthiest of taxpayers, centimillionaires. Taxing the wealthy, from the UK introducing tougher restrictions on its historically permissive non-domicile regulations, to France’s tumultuous snap election, to Italy suddenly doubling its flat tax. is a hot topic everywhere you look.
Taxes on the wealthy often make headlines, even if only at the proposal stage, as in Switzerland, where a party out of power thinks it might be “fair” to significantly increase inheritance tax. It seems like it is.
Of course, it’s not a simple problem. Global inequality is a centuries-old problem, and governments around the world are demanding better public services from their constituents, and for that to happen, something or someone has to pay for it.
Wealth tax and its impact
More millionaires and multi-billionaires than ever before are on the move, and as one group of countries compete to offload their spending needs to them, another group believes that wealthy residents are more We are laying out the welcome mat recognizing that there is a high possibility of generating sales tax. higher than many taxpayers do in income tax. There are many ways to increase tax revenue, and income tax is just one of them.
Wealth taxes are a hot topic, but most countries that have introduced wealth taxes in the past know what a blunt weapon they are. The fact that France abolished a wealth tax as unfeasible in 2018 does not prevent it from becoming a policy priority in some political parties’ manifestos in 2024. And Norway’s experience with raising wealth taxes quickly led to an exodus of the ultra-wealthy. This shows how high the wealth tax is. The perception that people are not paying their “fair share” remains blind to the difference between income and unrealized capital gains.
Although recent efforts at the G20 level to impose a global tax on billionaires seem to have died down again, such ideas tend to resurface. Fifteen years ago, many said that the world’s lowest corporate tax rate was impossible and unattainable, but that did not prevent it from becoming a reality.
Many countries do not impose an inheritance tax, and the question of whether inherited property should be “recognized” arises again and again. Other countries may have inheritance, inheritance and gift taxes, and countries such as the UK are considering bringing foreign trusts into their inheritance tax net. Taxation can quickly become very complex.
The world’s attention is focused on the US election.
Meanwhile, in the United States, a major election is being held in a relatively quiet environment regarding tax and spending plans, although Democratic presidential candidate Kamala Harris recently endorsed tax increases proposed by President Biden in the fiscal year 2025 budget. . This is a 25% minimum tax on gross income, including so-called “unrealized gains” or asset increases over USD 100 million.
A proposal that departs significantly from generally accepted international tax principles of taxing only realized income would make people look very carefully at the United States as an investment destination. Taxing unrealized gains along the way seems great, but from the point of view of handing it over to billionaires, the tax refund when these unrealized gains reverse the next year will be horrendous. In the wrong hands, this could look like a bailout for the wealthy when stock prices fall. No one will remember that you just paid back what you paid last year. There are many good reasons why other countries don’t do this.
The complexity of taxing the world’s wealthy
Raising taxes may seem like an easy solution, but be careful. If taxes on capital gains were significantly increased, shareholders could be completely offshored, eradicating all taxes on gains rather than doubling their returns. Soon, a few individuals packing up and leaving could have tax consequences in the millions, tens of millions, or even more.
There are no easy solutions in a cash-strapped world, but we must never lose sight of the fact that a small percentage of a large number is still greater than a large percentage of zero.
Some countries view immigration from the perspective of people in small boats crossing the Channel, but if you tilt your head and look up, you can see that small planes heading in the opposite direction are just as important. It might have meaning.
