Treasury Secretary Janet Yellen said the United States is against the adoption of an annual global wealth tax on billionaires.
A Treasury spokesperson confirmed to Tax Notes the comments made by Yellen in a May 20 article by The Wall Street Journal, in which she said the Biden administration won’t support a proposal introduced by Brazilian Finance Minister Fernando Haddad that calls for a 2 percent annual tax on the ultrawealthy.
Haddad, who has received additional support from other G20 finance ministers, estimates that such a measure could yield about $250 billion a year from less than 3,000 individuals.
Yellen’s comments appear to suggest that President Biden has drawn a line in the sand over the extent of his plan to raise taxes on high-net-worth individuals, which includes a 25 percent minimum income tax on those earning more than $100 million and a proposal to tax unrealized capital gains.
Alan Cole of the Tax Foundation believes efforts for a global wealth tax are shortsighted.
“The idea of a compounding wealth tax, even at a low rate, that eats away at savings the longer the savings are held is not a good tax base,” Cole told Tax Notes. “People have a way out of it by simply spending more on consumption earlier.”
Cole argues that such a scenario would be counterproductive to economic growth.
“As an economy, you need investments in productive industries, research and development, and promising, early-stage companies . . . but you need to find that capital out of the accumulated savings of somebody,” Cole said.
Cole also drew a distinction between a global wealth tax and the tax proposals put forth by the Biden administration.
“The unrealized capital gains tax would actually be a one-time income tax, so it’s more of an argument about when income is realized. What they are proposing may be constitutional . . . [but] I think a compounding wealth tax is much less likely to be under the 16th Amendment,” Cole said.
One international proposal the Biden administration has aggressively pursued is a global alternative minimum income tax, brokered by the OECD, on large corporations.
However, given recent tensions over the implementation of the measure, known as pillar 2, Cole said calls for another major international tax initiative may need to be tempered.
“You need countries not just to play a role in drafting the proposals themselves but also enlist countries to enforce the rules on those that don’t want to follow them,” Cole said, referring to the undertaxed payments rule. The rules would be imposed on those that don’t implement the 15 percent tax on companies earning more than €750 million per year.
“Pillar 2 has been difficult enough; pillar 1 may not happen,” Cole said. “I think it’s kind of fair for them to step back and say, ‘Let’s slow down the rollout.’”
Correction, May 21, 2024: An earlier version of this article misstated President Biden’s proposed minimum tax rate on those earning more than $100 million. It is 25 percent, not 20 percent.