World can raise $2 trillion by taxing its super rich, meet climate finance goals : Study

Ending special tax treatment afforded to super rich can cover estimated climate finance needs with vulnerable countries like India raising $86.1 billion a year by taxing its wealthy citizens

Countries around the world can raise $2.1 trillion a year by following the example of Spain’s successful wealth tax on 0.5% of the richest households. This is double the amount needed annually for developing countries’ external climate finance, expected to be at the centre of COP29 negotiations this year.

India—home to over a billion people and a country increasingly vulnerable to climate change—can raise $86.1 billion a year by taxing 0.5% of its richest citizens.

The new study from the Tax Justice Network estimated how much revenue each country can individually raise by taxing the wealth of only the richest 0.5% of its households at a feather-light rate of 1.7% to 3.5%. The wealth tax would only apply to the upper crust of the households’ wealth rather than all their wealth.

The table below looks at the money some Global South countries could raise.

The calls to tax the rich have been growing at G20 as well. Earlier this year, Brazil, Germany, Spain, and South Africa signed a motion for a fairer tax system to deliver £250 billion a year extra to fight poverty and climate crisis. A recent survey found that a majority of adults across seventeen G20 countries surveyed support the policy proposal where the rich pay a higher tax on their wealth, as a means of funding major changes to their economy and lifestyles.

While the G20 wealth tax proposal’s targeting of billionaires will primarily address the most extreme wealth concentrations in rich countries, following suit on Spain’s wealth tax law, which more widely targets the 0.5%, will allow all countries to tackle extreme wealth concentration in their economies, the study explained. 

Why bring in the tax? 

Extreme wealth is making economies insecure and is directly linked to people having to spend more than they bring in and to poorer societal outcomes such as worse educational attainment and shorter lifespans, the study said. The huge sums to be raised from the modest wealth tax are possible due to the extreme levels of wealth collected by the very richest. On average, just 3% of each country’s wealth is owned by half its population, while its richest 0.5% own a quarter. 

Root of the problem

The study said that at the centre of the issue is the two-tier treatment of collected wealth and earned wealth. Collected wealth – i.e. dividends, capital gains and rent gained from owning things – is typically taxed at far lower rates than earned wealth – i.e. salaries gained by working. At the same time, collected wealth typically grows faster than earned wealth. Today, only half of the wealth created around the world each year goes to people who earn for a living – the rest is collected as rent, interest, dividends and capital gains.  

While the super rich might work and have jobs, virtually all their wealth comes from owning business and real estate empires, not from working in those empires. Any work salaries they might earn are “a drop in their wealth bucket” , the study mentioned

The two-tier treatment has produced extreme results when it comes to the very richest individuals. Billionaires tend to pay tax rates that are just half the rates paid by the rest of society. And their wealth grows at twice the rate as that of the rest of society. This has contributed to the wealth of the 0.0001% quadrupling since 1987, to the detriment of economies, societies and the planet.

Mark Bou Mansour, head of communications, Tax Justice Network, said, “There’s this idea that billionaires earn wealth like everybody else, they’re just better at it. This is bogus. It’s impossible to earn a billion dollars. The average US worker would have to work for a stretch of time 13 times longer than humans have existed to earn as much wealth as the world’s richest man has today. Salaries don’t make billionaires, dividends and rent money do. But we tax dividends and rent money much less than we tax salaries, and this is destabilising the earner model our economies are based on.”

The study called on governments to put an end to the two-tier treatment of wealth by introducing wealth taxes. The report provided countries with detailed guidance on how to implement wealth tax laws modelled in the study and based on Spain’s example.

About The Author

Editorial Team

A team of handpicked and dedicated writers committed to fact check each climate-related statement. Go to the roots and intent of each policy implemented, internationally and at home to help you understand climate better

See author's posts