“The taxation system has tilted toward the rich, and away from the middle class, in the last 10 years. It is dramatic, and I don’t think it’s appreciated. And I think it should be addressed.” So said the billionaire investor Warren Buffett 18 years ago. He illustrated his claim by surveying his office staff: although he was then the world’s second-richest person, he was paying a lower percentage of his income in taxes than his receptionist was.

Since then, economic inequality has only gotten worse, partly because of the rise of tech stocks that are immensely valuable but do not declare dividends. In 2020, six of the ten wealthiest Americans—Jeff Bezos, Mark Zuckerberg, Warren Buffett, Larry Page, Sergei Brin, and Elon Musk—were major shareholders of corporations that do not pay dividends. Together, they were worth $500 billion, or 0.5 percent of total US wealth.

Last month, a paper from the White House, co-authored by economists from the Council of Economic Advisers and the Office of Management and Budget, estimated that America’s 400 wealthiest families, all of whom had wealth exceeding $2 billion, paid federal income tax at an average rate of 8.2 percent if gains in unsold stock are counted as income. The average American taxpayer paid 13.3 percent of their income in federal tax.

The US budget deficit, as a percentage of GDP, is now at its second-highest level since 1945. In poll after poll, Americans say that they want the rich to pay higher taxes, which would reduce the deficit and improve equity as well. Yet Congress does not raise taxes on the rich.

Consider the egregious “carried interest” loophole in the US tax code, which permits investment fund managers to pay lower tax on the fees they receive from their clients, as if those fees were capital gains, rather than income. President Joe Biden has said that he wants the loophole closed, but tax reform proposals must pass through the House Ways and Means Committee, chaired by Richard Neal. In 2007 Neal, a Democrat, supported an unsuccessful attempt to close the loophole. Then he started receiving big donations from the corporate sector, including $2.9 million for his 2020 campaign alone. Last month, the House Ways and Means Committee released its tax reform proposals. Closing the carried interest loophole was not among them.

The conclusion is inescapable: The United States is no longer a democracy. It is a plutocracy. But countries in which money has less influence on legislation are also struggling to tax the rich. The Pandora Papers, released earlier this month by the International Consortium of Investigative Journalists, shows how wealthy people in more than 200 countries and territories are keeping their assets offshore, many of them to avoid taxes.

Among them was Brazil’s finance minister, Paulo Guedes, who has ultimate responsibility for raising the revenue his country needs, but who has moved nearly $10 million of his own and his family’s money to the British Virgin Islands. Andrej Babiš, the Czech Republic’s prime minister when the papers were released, claimed that his decision to put assets into offshore accounts involved no wrongdoing. The electorate may have been sceptical: he subsequently lost a close election.

When leaders of the G20, which comprises the world’s major advanced and emerging economies, meet in Rome this week, they are expected to endorse an agreement to tax large corporations at a minimum rate of 15 percent. The aim is to end a “race to the bottom” that has driven down corporate tax rates as countries compete to attract investment. But the agreement will be phased in over ten years and has significant exemptions. Even for corporations that do not qualify for an exemption, the 15 percent minimum rate is lower than most firms based in developed countries pay.

Is there anything else that the G20 could do about the tax inequity between the rich and most working people? The economists Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley have suggested a wealth tax of 0.2 percent annually on the value of all publicly listed corporations’ stock. Such a tax, they note, is progressive, because the rich own a lot of corporate stock, and the poor own none. It is also difficult to evade, because the value of a corporation’s stock is public.

Moreover, Saez and Zucman point out that a wealth tax would not affect the availability of corporate finance, because publicly traded companies can issue more stock (slightly diluting the value of existing shares) and pay the tax in kind to governments, which can then sell the stock on the market. Extending the tax to large private corporations would also be feasible, using standard methods of valuation.

The opening of the global economy over the past 30 years lifted hundreds of millions of people out of extreme poverty, but it also enriched multinational corporations, which have been able to shift profits to wherever the corporate tax rate is lowest. The G20 can take one step toward remedying that by accepting the proposed 15 percent minimum rate, but that will leave untouched the wealth that comes from startups that are not making profits but still have soaring stock prices. The G20 countries can meet that problem by adopting a wealth tax along the lines Saez and Zucman recommend.

—Project Syndicate