It is a few minutes past five when Gabriel walks into the lecture hall in the new university building on Spui. Earlier, he had been in the Lower House to speak with politicians.
This Monday afternoon, he is giving a lecture on the same subject at the university. ‘The title says it all’, he says, pointing to his PowerPoint presentation. ‘Time to tax billionaires’. Because billionaires pay significantly less tax than the rest of the population, and that needs to change.
‘We live in a world where wealth has exploded, and the power that comes with it has increased’, but until a few years ago, little was known about this subject. That changed when researchers from various countries, including the Netherlands, France, the US, Sweden, Norway and Brazil, discovered a flaw in the tax system that allows billionaires to pay proportionally less tax than the rest of the population.
ALMOST ZERO
Zucman shows statistics on tax rates based on income. The Dutch line fluctuates between 40 and 45 per cent until incomes reach 100,000 euros, after which the line begins to plummet to a low point when it reaches billionaires: ‘In the Netherlands, the super-rich pay only 17 per cent in income tax.’
Furthermore, billionaires in Europe systematically store their income in holding companies, which makes their earnings appear lower than they actually are, reducing their tax liability even further.
In the US, the situation is slightly different. ‘Income tax falls short because, if you’re extremely wealthy, it’s relatively easy to structure your assets in such a way that they generate very little – and sometimes even no – taxable income.
SHELL COMPANIES
‘We have examples like Jeff Bezos and Elon Musk who reported very low incomes and paid very little tax.’ Bezos, for example, did not pay himself a salary from Amazon and did not sell any shares, which meant he had no capital gains. As a result, his taxable income was effectively almost zero, even though his actual economic income – namely his share in Amazon’s profits – was very high. Income tax simply doesn’t work in that context.’
It is a systemic problem. ‘One that is even bigger in Europe than in the US. In Europe, billionaires place their shares in holding companies, which function as shell companies. So these are all holding companies that receive profits without income tax and usually without corporate tax as well. In those countries, including the Netherlands, income tax drops to almost zero.’
In the US, a law has been in place since 1937 that prohibits the storage of income in holding companies. In 1933, the New York Times discovered that J.P. Morgan, one of the richest Americans at the time, had not paid any income tax for the two previous years. ‘He had stored his money in holding companies.’ This caused outrage among the population and led to the introduction of the law.
No such law has ever been drafted in Europe. And that is a big problem. ‘It’s a violation of the principle of “equality before the law”, in this case: equality before the tax law. The most conservative interpretation of that principle is that wealthier individuals should not be allowed to pay less tax, relative to their income, than the rest of the population. But no matter how you look at it, this is exactly the situation today.
‘Secondly, it’s a problem because it results in significant revenue losses for the government. This wasn’t a major problem for public finances forty years ago, because the super-rich weren’t as rich back then as they are now.’
Over the past few decades, the wealth of billionaires has exploded. The taxes that they don’t pay have to be collected elsewhere. One way or another, the rest of the population ends up paying for this.’
BUYING NEWSPAPERS
And that is the third problem. ‘Ordinary people first have to pay tax on their wages. Only after that has been done and their daily expenses have been paid can they start saving and accumulating wealth. The super-rich, on the other hand, can save one hundred per cent. That is how the wealth of billionaires has been able to grow by an average of ten per cent per year over the past four decades.’
And with extreme wealth comes extreme power. ‘Power over politics, over policy-making, over markets. The power to buy up competitors, to buy newspapers and influence the dominant ideology.’
There is always friction between extreme wealth and democracy. ‘If we look at the sustainability of democracy, this is a cause for serious concern.’
In 2024, Zucman presented a report at the G20 summit in Brazil proposing a plan to tackle the super-rich. ‘Anyone with assets of a hundred million or more should pay a minimum tax of two per cent of their assets. If you already pay two per cent of your assets in tax, for example through income tax, you don’t have to pay anything extra. But if you fall below that threshold, for example by using structures that channel your income in holding companies, you must still pay the difference.’
COMMUNIST REVOLUTION
This is possible, says Zucman, because wealth is much more difficult to manipulate than income. This way, billionaires would pay a similar tax rate as the rest of the population. ‘The super-rich cannot exist outside society. This minimum tax would ensure that they don’t pay 20% less tax than the rest of the population, but a comparable percentage. Hardly a communist revolution’, Zucman jokes.
In the Lower House, he expressed his hope that the Netherlands would take the lead in introducing such a law. The French parliament has already passed a similar law, but the Senate has yet to give the green light. The country’s ultra-rich responded by launching a media storm against the proposal.
It has to start at the national level. ‘You’re not going to be able to push through an international policy. It needs to happen because some countries do it and the rest follow, because it becomes “the norm”.’
Gabriel Zucman (1986) is a professor at the Paris School of Economics, a researcher at the University of California, Berkeley, and director of the EU Tax Observatory. In 2015, he wrote the influential book The Hidden Wealth of Nations: The Scourge of Tax Havens