Billionaire CEO Bernard Arnault, who heads luxury goods group LVMH and was previously the richest man in the world, criticised the proposed 2% tax on billionaires, calling it an assault on France’s economy.In a statement to The Sunday Times, he also dismissed French economist Gabriel Zucman, the architect of the proposed tax, as a “far-left activist” whose “pseudo-economic competence that is itself widely debated.”Zucman responded to this criticism in a series of social media posts, writing: “I’ve never been an activist for any movement or party.” A professor at the École Normale Supérieure, Paris, and the University of California, Berkeley, Zucman challenged Arnault’s contention, saying seven Nobel Prize winners in Economics supported his 2% tax proposal.“We can have fundamental disagreements, and Arnault is entitled, like all citizens, to his opinions. But this debate must take place with respect for the truth and the facts,” Zucman told the Agence France-Presse (AFP).Here is what to know about the proposed tax and the opposition to it.First, the basics. What is a wealth tax?Quite simply, a wealth tax is a direct tax levied on a person’s total net assets, which include their cash, property and investments. A wealth tax targets the entirety of their accumulated wealth, and not just the income earned that year (which an income tax targets).Wealth taxes are not a new concept globally, although fewer countries now have such taxes in place. In India, for instance, a wealth tax targeting individuals with wealth exceeding Rs 30 lakhs was introduced in 1957 and remained in place until it was repealed in 2016. Then-Finance Minister Arun Jaitley justified this move, saying the costs of implementing such a tax system outweighed the revenues thus collected.Story continues below this adSo, what is the proposed billionaire tax?Zucman has long proposed a 2% wealth tax targeted at the richest group, and maintained that billionaires should be taxed a minimum of 2% of their net worth, not just their annual income. This was championed by Brazil at the 2024 G20 Summit, and endorsed by countries including France, Spain and South Africa, but opposed by the US.In France, the proposed tax would target assets valued at over €100 mn (roughly $118 mn). It would impact the country’s top 1,800 households, the economist says, and could potentially generate €20 bn annually, nearly half the projected savings proposed by the ill-fated austerity budget put forth by ex-PM François Bayrou before his government was unseated in a confidence vote.Why billionaires, and why 2%?Zucman told Le Monde in an interview last week that the 2% figure was not chosen at random, but was the rate that would prevent the tax from being regressive (burdening the poorer sections more than the rich). “At 2%, billionaires would pay as much – but no more – than the social categories directly below them, namely senior executives. I see this as a minimalist reading of the principle of equality before taxation,” he said.The Global Tax Evasion Report 2024, published by the EU Tax Observatory, highlights that ultra-high-net-worth individuals currently pay relatively less in tax relative to their income when compared to other income groups. Zucman contends that the ultra-rich tend to restructure their wealth effectively to ensure they do not pay any tax.Story continues below this adThe report stresses the need for progressive taxation, ensuring a higher tax burden on people with higher incomes. Economists have long advocated for progressive taxes in an effort to redistribute wealth from a country’s richest persons to its poorest and thus reduce economic inequality.Zucman told Le Monde that a rate below 2% would preserve the tax advantage for billionaires.How has the tax been perceived?The proposed tax has proven to be popular among the French masses: A study by the French Institute of Public Opinion (Ifop) showed that 86 per cent of respondents favoured the proposal, including 92% in President Emmanuel Macron’s Renaissance Party.On winning the presidential election, Macron shifted the focus of the wealth tax from general wealth to only real estate, in a bid to present France as a business-friendly nation. However, the move earned him lasting criticism as “president of the rich”.Story continues below this adThe austerity budgets proposed by Bayrou and his predecessor, Michele Barnier, focused on spending cuts across the board and proved to be widely unpopular. Both their governments collapsed before they could complete one year, while countrywide protests have erupted over the move.Also Read | India US trade deal: The much-delayed negotiations seem headed into the final leg. What lies ahead?Sebastien Lecornu’s appointment as Prime Minister earlier this month has made the likelihood of a billionaire tax all the more likely, as the opposition Socialist Party – whose vote is imperative for the budget to be passed by October 7 – has demanded the tax as a necessary precondition for its support. The proposal has been welcomed by the left parties, who managed to get it passed in the lower house this February, before it was rejected in the Senate. In failing to enact such a law, Lecornu’s government could face yet another confidence vote that could unseat yet another Prime Minister within the year.Other economists have also raised concerns of capital flight, with billionaires opting to leave France and migrate their assets with them, should the 2% tax become effective. This would thus negatively affect the local economy.Zucman has dismissed these fears and said the move would raise necessary revenue to help the country tide through its economic crisis. A study by the French government’s Council of Economic Analysis concurs with this view, saying that any such exodus would at most amount to 0.03% of the ultra-rich and would not therefore devastate the economy.How did France get here?Story continues below this adSince 2008, France has maintained a high accumulated debt at a high 90% of the GDP, but managed this through steady growth, near-zero interest rates, and a solid credit rating, which allowed for borrowing on favourable terms.This scenario was upended by two factors: The pandemic in 2020 and the energy crisis that ensued when Russia cut off most of its natural gas supplies after the onset of its war with Ukraine in 2022. Accompanying this was a drastic increase in interest rates globally, which increased the cost of borrowing. The government drastically increased subsidies to shield businesses from crisis, and customers from higher utility bills. The result: the country’s accumulated debt jumped to 114% of GDP in 2020, which it has maintained to date.Further, the country’s annual deficit swelled to 5.8% of GDP, above the EU’s 3% limit. The country’s taxes are already a high 43.8% of GDP, while spending (around 57% of GDP) has been primarily diverted to bureaucracy and defence. Add to this the high interest rates, with interest costs at €67 billion annually, important sectors like education and healthcare are deprived of important funds.Macron’s call for fresh parliamentary elections last July compounded the problem, resulting in a hung parliament divided among three factions – a leftist coalition, calling for taxes on the wealthy, the far-right led by his rival Marine Le Pen, and the centrists in between. Three governments have collapsed in the absence of a functional majority that has successively voted against the austerity measures endorsed by the president.Story continues below this adCour de Comptes, France’s chief audit institution, reported in July that the president’s tax cuts favouring businesses and wealthy persons had resulted in an annual loss of €50 billion to the treasury. Despite his opposition to the Zucman tax, PM Lecornu would need to announce some form of a wealth tax in the upcoming budget.