A new research report proposes the institution of a new tax on the shares of all publicly listed companies headquartered in G20 countries.

The study by Emmanuel Saez and Gabriel Zucman (University of California, Berkeley) suggests that every year, each company would have to pay 0.2% of the value of its stock in taxes. As the G20 stock market capitalisation is around $90 trillion, the tax would raise approximately $180 billion each year.

Because stock ownership is highly concentrated among the rich, this global tax would be progressive, the authors argue. The tax could be paid in-kind by corporations (by issuing new stock) so that the tax does not raise liquidity issue or affect business operations.

Professor Zucman, who is presenting the report at the Economic Policy public panel on 15 April, says:

‘Large multinational companies have been the largest winners of globalisation and yet can easily avoid paying corporate taxes by shifting profits to tax havens. This fiscal injustice undermines support for our modern and open global economy.’

‘While there have been proposals to make the corporate tax system work better, they tend to be highly technical and require complex enforcement infrastructure. They are also hard for the public to understand. Our proposal a much simpler solution that could resolve the challenge while gathering strong public support.’

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Governments worldwide have reacted swiftly to the Covid crisis, with ambitious relief measures to support families and businesses. More than a year after the start of the pandemic, various paths for sharing the economic cost of this crisis are discussed, such as debt renegotiations, one-off levies on top-end wealth, a higher taxation of top incomes, or more broad-based tax increases.

The new study proposes a new instrument that could usefully complement the other measures envisioned until now. The authors propose to institute a new tax on corporations’ stock shares for all publicly listed companies headquartered in G20 countries. Every year, each company would have to pay 0.2% of the value of its stock in taxes. The securities commissions in each G20 country (which already supervise the creation and transactions of equity securities) would be in charge of administering the new tax.

This proposal is particularly adapted to the immediate post-Covid world. The pandemic has reinforced two of the defining trends of the pre-coronavirus global economy: the rise of business concentration; and the upsurge of inequality. While brick-and-mortar stores were closed during lockdowns, Amazon sales rose, cloud computing exploded, Facebook traffic soared.

Giant businesses emerged as the main winners from the pandemic. Despite the collapse of world output, their market capitalisation increased and with it the wealth of their owners. In the United States, for example, the wealth of the 400 richest Americans reached the equivalent of 18% of GDP in April 2021, double the level observed in 2010. Billionaire wealth surged globally during the pandemic.

A tax on the capitalisation of listed corporations would also contribute to addressing broader trends that pre-date the pandemic. Large multinational companies have been the largest winners of globalisation since the 1980s. But instead of paying more taxes, these economic actors have tended to pay less, in particular because they can easily avoid paying corporate income taxes by shifting profits to tax havens.

This fiscal injustice undermines support for our modern and open global economy. Put simply: if globalisation means lower and lower taxes for its main winners (multinational companies and their shareholders), and higher and higher taxes for those who do not benefit much from it or sometimes suffer from it (retirees, small businesses, low-wage workers), then it is unlikely to be sustainable, neither politically nor economically. It is urgent to reconcile globalisation with tax justice, and to demonstrate practically that economic integration can go hand in hand with a greater taxation of those who most benefit from this process.

While there have been proposals to make the corporate tax system work better, they tend to be highly technical and require complex enforcement infrastructure. They are also hard for the public to understand, giving power to corporate lobbyists to ‘defang’ remedy proposals. The solution proposed here is simpler, and it can generate substantial revenue in a progressive manner while gathering strong public support.

Because stock ownership is highly concentrated among the rich, a tax on the capitalisation of listed companies would be highly progressive. In the United States, for example, the top 1% wealthiest household own about 33% of all publicly-trade corporate equities (including indirect ownership through pension and insurance funds). As the G20 stock market capitalisation is around $90 trillion, or about 90% of the G20 countries’ GDP of $100 trillion, the tax would raise approximately $180 billion each year, approximately 0.18% of the GDP of the G20.

The tax is akin to a wealth tax on the value of corporations, so that the most successful companies pay the most. In our globalised and fast-moving world, companies can become enormously valuable once they establish market power worldwide and even before they start making large profits (for example Amazon or most recently Tesla). This tax would make them start paying taxes sooner.

The tax would be easy to enforce and difficult to avoid as publicly traded securities are already highly regulated by the securities commissions of each country. These regulators already charge various (but generally modest) fees on stock issuance and transactions.

The proposal works best if the largest economies coordinate to adopt the tax jointly. Corporations headquartered in the G20 represent over 90% of the world corporate equity market value. The G20 would also be the ideal institution to negotiate the creation of such a tax and decide how the proceeds of such a tax should be allocated between member countries, used to fund current international priorities, or possibly to build an international global sovereign fund to address global challenges such as climate change.

Because the tax rate is low (only 0.2%) and G20 countries are in need of tax revenue due to the large increase in public debts due to the Covid crisis, it is conceivable that most or all of G20 countries could agree to such a tax in the foreseeable future.

‘A Wealth Tax on Corporations’ Stock’

Authors:

Emmanuel Saez (University of California, Berkeley)

Gabriel Zucman (University of California, Berkeley)