The Architect Of The Billionaire Tax Makes His Case — ft. Gabriel Zucman

32:45And so in Prop 40, there is a smoothing mechanism so that it's not like if you are just below$1 billion, you pay zero, and if you're just above$1 billion, you pay 5%. So there is some smoothing. But I think it's fair to say that there is a need for fixing the tax system, not just for billionaires, but let's say people who have more than$100 million in wealth oftentimes can find ways to pay relatively little in income tax. And so there's going to be a need for broader reform down the road. But it's useful to start with billionaires because there are very few in number. So in California, it's just around 250 billionaires, according to Forbes magazine.

33:42So they're very visible, slightly easy to value their wealth because about two-thirds of their wealth corresponds to shares in publicly listed companies listed on the stock market. And so as a starting point, it makes a lot of sense. It will be easy to have high audit rates, to have a good enforcement of that tax. And then if it's successful, it could pave the way for some evolution in the future. I think a lot of people would argue and have argued that this method of taxation is kind of a slippery slope on the way to infringing private property rights in America. And I think the The billionaire's argument would be, you're basically just taking 5 % without my consent.

34:38Even if I try to go somewhere else, I don't really have a choice. And what if this marks the beginning of an era where we decide that the solution to our problems, to our potentially irresponsible fiscal spending, is to simply take people's money, take people's assets? And some would argue that this is going too far, that it is too aggressive and the beginning of a cycle that perhaps might not be the right direction. What would you say to those concerns? Well, I think if we are talking about Prop 40, 5 % one-time tax on billionaires, 250 people, those concerns really don't make a lot of sense because the wealth of those billionaires has increased like 250 percent just over the last two years and we're talking about a five percent tax you know for them it makes no difference whatsoever it's just a drop in the ocean billionaire wealth in California has been multiplied by 30, 3-0 since the 1980s, when average income per family simply doubled.

36:01If you want to, so there is this explosion of top-end wealth. Everybody agrees with that. This extreme wealth is barely taxed today. So I think if we were starting from a situation where those billionaires already contribute a lot and we're adding an extra tax, then, okay, I could understand those concerns about, okay, you're asking people who already contribute a lot to pay even more. You know, is that fair? Is that a good idea? That's not the current situation. The starting point, the current situation is they pay very little. So just some numbers. If you look at the income tax paid, the California income tax paid by California billionaires, this accounts for about 2%, 2 % of total California income tax revenue.

36:59This is equivalent to 0.2 % of their wealth. They pay very little in income tax because they find ways to report no taxable income. So that's the current situation. It's as if they lived in their own parallel society, free of tax. Everybody contributes to the public infrastructure, the education system, the universities, the healthcare system, which has allowed them to thrive, which has allowed their businesses to grow, to be successful, but they don't contribute. That's the current situation. Many people in California, millions of homeowners, pay a wealth tax. They pay property taxes. The property tax is typically around a bit more than 1 % of the value of their homes.

37:59But people who have a mortgage, which is the vast majority of homeowners, the property tax relative to the net wealth of those people, if it's done the mortgage, so relative to their true equity, their true wealth, the property tax rate can be way higher than 1 % per year. You know, so you have millions of people who already have relatively high annual wealth tax rates when the billionaires are almost tax free. This is this situation which, frankly, is unacceptable and that Prop 40 tries to begin addressing. Is there a sense in which Prop 40 might also be designed to punish billionaires? Because I think that one of the difficult things about the taxation conversation and the inequality conversation is that people are very, very angry at billionaires for many of the reasons that you described.

39:04for the unprecedented inequality, the fact that one in 10 Americans are still living in poverty, and at the same time, there is such thing as a trillionaire in America. And I wonder if the aggression and the stringency with which this taxation has been proposed, Prop 40, a 5 % immediate taxation, no matter what, if that is expressing some level of anger at the billionaires. And that's the part that makes me a little uneasy, because I wonder if there are other ways to tax them, like, you know, you mentioned the borrowing tax, which might not be substantial enough, but maybe reforming the estate tax, increasing the capital gains tax, simplifying the tax code, eliminating loopholes, etc., that might get at the problem without necessarily demonizing billionaires for being the problem.

40:02I think this is really not about their merits or demerits as individuals. This is not about whether they're good or bad people. This is really only about budget, budgetary issues. The state of California needs$100 billion to offset the deep federal cuts to Medicaid, medical in California, so the health insurance for low-income Americans, which has been slashed in the federal tax bill of 2025. So millions of people are going to lose health insurance. This is going to have ripple effects on the premiums for private health insurance, which are going to increase. So there's a revenue shortfall,$100 billion to face to offset those cuts.

41:03Question, what's the best way to get and the fairest way and the most efficient and the most effective way to get$100 billion in California in 2026? Number one, you cannot get anything passed through the legislative process because since 1978, COP 13, you need a supermajority of two thirds to pass any tax increase in Sacramento through the normal legislative process. That's why everything has to go through and in effect goes through ballot initiatives like the California Billionaire Tax Prop 40. Number two, what are the different levers, different tools that you could play with? Well, you could increase the income tax.

41:56Sure, it's not going to affect the billionaires. That's the whole problem. They don't have taxable income or very little in taxable income. You could tax their borrowing. It's going to be tiny. The whole problem is that their consumption is tiny relative to their income, relative to their wealth. They only borrow to fund their consumption. So it would raise trivial amounts of money. You could change the estate tax, but the estate tax is only when they die. So in 30, 40 years, why should everybody have to pay year after year? or even every quarter, if you're self-employed, you have to make advanced tax payments every quarter.

42:41And the government really insists that it's important for you to pay your taxes each and every quarter. But for the billionaires, oh, that's okay. We can wait for several decades until they die before we start making them pay anything. That's not logical. So in the current situation, well, there is this 100 billion revenue need.

43:07and the billionaires pay much less than the rest of the population. And you cannot make them pay with the normal tax tools, in particular the income tax. The most effective, the most logical situation is with some kind of tax based on wealth. Hence, prop for it. Let me just perhaps mention one thing that I think really clarifies the budget situation and the trade-off in all of that. If you can, let's compare two potential tax bases. So on one hand, you have AGI, adjusted gross income. That's the total income that's reported by people on their individual income tax returns. Okay, so total income that's taxed.

43:57And the other base that I want you to consider is billionaire wealth, the value of all the assets owned by billionaires. In California, 250 people. It turns out that today they are as big. Total AGI, total income for 25 million Californian families is as big as the total wealth of 250 billionaires. which means that you get as much tax revenue with a 5 % income tax or an increase in the income tax of 5 percentage points for everybody in California. Everybody has to pay 5 % of their income in taxes in addition to whatever they currently pay. This generates as much revenue than a 5 % tax on the wealth of 250 families.

44:53Okay, currently we are not taxing that wealth. It is barely taxed. They pay in tax only the equivalent of 0.2 % of their wealth, while regular families, well, they pay income tax. Some of them pay property taxes. They pay sales taxes. So they pay quite a lot. And so that's why also that's the fundamental thing that has changed over the last decade. If you compute this ratio, you know, how big is billionaire wealth relative to total income for the population? the ratio was about 10 % in the 1980s, 1990s, meaning the government revenue at stake from taxing billionaires were not very high. And I think many people have remained stuck in the 1980s, 1990s, where they think, well, the billionaires are so few in number that perhaps they don't pay a lot of tax, but who really cares because there's not a lot of money at stake.

45:50And that might have been true at the time, But today that their wealth has become as large as the total income of the entire population, the situation is just completely different. And when there is a revenue shortfall, like today in California, the most logical starting point is with this massive undertaxed base. I assume you don't think that increasing the capital gains tax dramatically would do it. This is something that we have heard proposed. Maybe we just make the capital gains tax rate equal to the income tax rate, tax capital as much as you would tax labor. Is your view that that would not be sufficient because billionaires would not sell?

46:35Look, I think all these reforms that you've mentioned, increasing the capital gains tax rate, changing inheritance tax, closing loopholes like the step up in basis at death, all of that should be done. All of that would go in the right direction. But also, none of that addresses the fundamental problem that for the ultra-wealthy, they don't contribute their fair share, precisely for the reason that you just mentioned, which is that when you're a billionaire, you don't need to realize any capital gains. You just don't need to do it. So whatever the rate is on realized capital gains is just irrelevant for them.

47:18Yeah. Do you see a world where, say this is passed in California, 5 % one-time wealth tax, could you see a world in which states around the nation start to implement the same thing as they realize that it's politically possible? And then could you see a world where we start doing more of it, where we've decided, you know, next year, why not just do it again? We all agree that we want the billionaires to pay more in taxes. So why not another 5 %? And why not go to 10 %? Why not go to 20 %? The question being, at what point is there a line? Is there a limit in your view as to when this goes too far?

48:06So number one, I think that if it passes in California, then indeed, I think it's likely that we'll see similar initiatives in other states. It would be, Prop 40, if it passes, would be the first ever billionaire wealth tax enacted anywhere in the world. A number of countries, especially in Europe, have had wealth taxes in the past. They were completely different because they started way lower in the wealth distribution, typically at around$1 million in wealth, but they exempted the billionaires. So Prop 40 does the opposite. It's just on the super rich, but with no exemption whatsoever for that.

48:47It has never been done. And so the whole country, and in fact, the whole world is going to watch California. And so imagine that it passes, the state gets$100 billion. And you know what? the sun keeps rising in the morning, it's not the exodus that was predicted, it's not the end of Silicon Valley or what have you, then I think, yes, many other states will look at that experience and say, let's also do it. Number one. Number two, I think that, of course, one-time taxes have limitations. And I think that eventually there will be a transition towards some kind of annual wealth tax. Whether the right rate for a state on its own is 5 % or 2 % or 1 % is difficult to know.

49:45It depends on what the other states are doing. And as I said, this type of annual policy is better done at the federal level. But I think there will be this evolution, right? And so I agree. So that's one area where one point I really agree with the billionaires. They always say, look, it's not going to be one time. It will become annual. Sure. I think that's the sense of history. This will become annual. And number three, I think there will be a lot of experimentation, meaning we start with this one time 5 % tax then perhaps an annual 1 % annual 2 % other rates and some people are very frightened about this the fact that rates might change my perspective is that we should embrace experimenting because that's how we are going to learn about what's the right tax rate and what's the right way to organize taxation for the ultra wealthy.

50:47And there was a lot of experimentation over the course of the 20th century with the income tax. It started very low. It went really high, it went really progressive. Then the top module tax rate was reduced a lot under Reagan. And we've learned, I think, collectively a great deal from that experimentation. And I think something like that is going to happen in the 21st century for billionaire taxation, for progressive wealth taxation more broadly. And at the end of the day, that's the only way that we can learn collectively and decide collectively about the proper way to do taxation is by experimenting, seeing the consequences of these choices and changing course when we think it's necessary.

51:34Do you concede that there is a world in which we could go too far? I mean, just based on what we've seen throughout history, where there have been times where governments have been in extremely bad fiscal situations because they had overspent, because they had mismanaged their budgets and resorted to asset seizures that, looking back through history, feels more like an authoritarian regime. Do you believe that that is something to keep in mind or is that a distraction and not worth worrying about? I think, frankly, the risk as we speak today, summer of 2026, is to do too little, not to go too far.

52:24The risk is to remain stuck in the current situation where the billionaires live in their own parallel society. And so their wealth, structurally, because they don't have a lot of tax to pay, grows much faster than the wealth of everybody else. And the problem with that is not just a problem of tax revenue. It's not just a budget problem. It's an inequality problem because there's kind of a snowball effect where people who are already viraged can add to their wealth at a faster pace than everybody else. So it fuels the rise of wealth concentration. But the deep problem, by far the biggest problem, is just a problem for democracy.

53:15Because there is a fundamental tension between extreme wealth on the one hand, an extreme concentration of wealth, and the very possibility of democracy. And I think this is what we should be concerned about today in the summer of 2026. And this has been understood for centuries, you know, that wealth for most people is a good thing. We'd like to encourage wealth accumulation by the middle class, by the working class. Great. But wealth for the super rich is not, you know, owning a home or retirement saving for their old days. wealth for them is power. It's the power to influence politics, it's the power to buy media companies and so to influence a pervading ideology.

54:06It's the power to tilt markets by buying competitors. And so extreme wealth is always an extreme power that distorts the market economy, that distorts the political process. And regulating that power is what is urgent today. And I'm concerned about undershooting, under-regulating, and about the continuation of the oligarchy spiral that we see in that country. That is my concern. And I think that's the concern that most Americans actually have, rather than the very hypothetical concern that we might go too far in some distant future. We'll be right back. And just a quick reminder, this show is taking a summer vacation for the next two weeks.

55:06So we will be back on August 31st with a fresh episode.

55:44We'll be right back. Visit your nearest Crock store today.

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56:53We're back with Prof G Markets. Where do you think things go at the current trajectory? Because you point out that we are in a moment that is uniquely urgent and poses unique levels of risk. what kind of America, what kind of world do you fear we are turning into? And do you think will realistically happen if we were to not address the inequality problem? I think what worries me is a world where our freedom, our individual freedom, is significantly reduced. that's the price that we might all end up paying if wealth concentration keeps rising. And you can make that thought experiment for yourself.

57:48Imagine that some person, for some reason, ended up owning$100 trillion in wealth, 99 % of the world's wealth. that person would have tremendous power and influence on everything. No one would want to live in such a society where one person has so much wealth and so much power. And we're not there, but what it means is that there is necessarily a point where wealth concentration and extreme wealth is too much, infringes on the freedom of the rest of the population. And of course, it's hard to know what is this tipping point. But I think you look at what has happened in the U.S. over the last few years, the enormous power that's been unleashed by people like Elon Musk when he bought Twitter in 2022, to turn it into a kind of machine for various ideological causes, including the re-election of Donald Trump.

59:04This brought him to Washington, D.C., with a quasi-cabinet position, with total freedom to slash government spending that he didn't like, leading to the shutdown of USAID, with consequences, premature death for millions of people all around the world. This type of extreme discretionary power that we didn't see before 10 years ago, the risk and the concern I have is that we're going to see more and more of that if we don't find a way to regulate extreme wealth. Yeah, it seems like power is the significant motivator here. On the other side, the people who are concerned about your proposals would say that to the other end, it might accumulate or centralize too much power in another entity, which would be the government.

1:00:05And it seems that that might be the tension that is playing out right now. There's the accumulation of power and the ability to influence the trajectories of the lives of millions of people in the hands of a handful of tech billionaires. And then there's also the other side, which people are worried about when they see the examples of Mao or the Soviet Union, that that might happen in a political context. Is that the right way to think about things? Do you think that there is a balance between those two polarities? Is that something that is part of your calculus when thinking about taxation? No, because the proposal with wealth taxation is not for the government to own assets like in the Soviet Union or in communist China.

1:01:02The proposal is not for government ownership of capital. The proposal is about how to structure our tax system so that everybody contributes their fair share. And how do we organize this to ensure that we keep investing in what is going to be, to continue being the true engine of economic growth and shared prosperity, which is good schools for everybody, which is access to healthcare, to high quality healthcare for everybody. which is transportation or public infrastructure that makes businesses thrive, that complements private production. How do we make this happen? This has been the fundamental driver of growth, this mass public investment in those public goods in the 20th century.

1:02:12And we need more of that in the 21st century. We're going to have an aging population, which means we need more health care. We are going to have to face the challenges of climate change, meaning we need to make lots of investments. We need broader access to higher education. We need to have to invest in research, in innovation. And all of these things, the private sector has some role to play. but also the public sector often is more efficient when it comes to providing healthcare, for instance, if you compare OECD countries and the US, or it comes to creating public infrastructure. And so we need government revenue, and we probably need more than what the US is currently collecting.

1:03:00And the question is, how do we do that in a way that's functional? And it's not going to work if the system is captured by a handful of billionaires who have no interest in public spending in education, public spending on health care, because they don't need those public goods. That's not going to work. So that's why regulating their power is so important. You mentioned this idea that the government wouldn't have ownership of capital, that that's not the point, unlike previous communist or socialist regimes. Um, but wouldn't a wealth tax, if the precedent is that the government has a claim to tax 5 % of assets, is that not de facto a form of ownership of capital?

1:03:53Is that not kind of the direction that we would be going on? I mean, the government presumably wouldn't just sit on the capital, we'd put it to productive use, unlike what the billionaires are doing by just accumulating it. But in a sense, they have a claim to private capital. But in the same way that they have a claim on your houses, your homes with the property tax, which is an annual wealth tax. And no, it has not made the housing stock publicly owned. So no, no, it's really different. You know, it's just what's the right way to collect money from the super rich. If it's just based on income flows, it's not going to work.

1:04:40Now, look, the U.S. also has, in fact, and many people have forgotten about that, has a long history with annual wealth taxation at the state level. In the 19th century, the property taxes that existed in many states, they were known as generalized property taxes. So they were not just on real estate or land, but in many states they were also on financial assets, on land deposits, on shares, and so on. They were not progressive, so it was the same rate for everybody. But in fact, it used to be the main source, those generalized property taxes used to be the main source of state government revenue in the 19th century.

1:05:26And, you know, it was not communist China or it was not the USSR. So, you know, I think this is really not about this. If you're concerned, I think, frankly, if you approach these issues from, let's say, a free market perspective, if you're concerned about functioning of the market economy, if you want a thriving free market economy, I think you should be really concerned about the number of actors, of individuals having the power that they have today. Because that really conflicts with the functioning of markets. They can buy competitors, they can rig markets, they can influence policymakers, they can extract rents, they can...

1:06:12You know, everything, frankly, a lot of what's happening in this country in terms of regulatory changes, in terms of lawmaking, is downstream from the upsurge in billionaire wealth and influence. And I think that if you are generally attached to, you know, a well-functioning market economy, you should be really concerned about this current situation. Is that important to you? Free markets, a functioning free market economy, Does that, is that part of your calculation? Of course, addressing equality, inequality, but is that part of it for you personally as well? Yeah, I think it's important to have a well-functioning market economy.

1:06:57I don't think that this is, you know, the only objective that we should have as a society. And very, for me, what matters a lot, and even more than that, is to have a true democracy where everybody has a voice, no matter their wealth, no matter their income. But yes, I think it's important to have markets that work well. And I think this is not the case when you have actors who are just too big and powerful. Yeah. Just going, as we start to wrap up here, just thinking about where this all goes, something we often point out is that when you look at the Gini coefficient for wealth inequality today, it's the same as what it was estimated to have been in 18th century France right before they made a revolution and started chopping off people's heads.

1:07:52I mean, is that the end game? Are we getting close to that point? Is the hatred of the inequality, is the anger, is it bubbling up to a point where we might see something like we saw in France or in Cuba or in Russia, countless societies where inequality reached a point that it boiled over and turned into physical violence. Is that something you worry about? I worry about the fact, and I think like most people, frankly, that inequality and extreme equality is corrosive for the social contract. It's just harmful for society. And look, this is a deeply held view in the US, in America. If you read the founding fathers of this country.

1:08:54If you read James Madison, for instance, he wrote that excessive wealth concentration is as harmful for a republic as being in a state of war. And he writes that the main objective of political parties should be to prevent that, to regulate inequality so that we don't end up in such a situation of extreme wealth and an imbalanced power. So I think a balanced republic and balanced economy has to come with equality. And extreme inequality is just inherently corrosive. But do you think we are close to the situations that we saw in other societies? Frankly, it's difficult to know, you know, it's difficult to make predictions, but I don't think it's a very sustainable path.

1:09:57And the current pace where, you know, the billionaires owned 3-4 % of GDP in wealth 40 years ago, and now it's 30%. And then what, you know, 70%, 200%, you know, where do we stop? I don't think this is going to continue like that. I do think there's going to be some innovation. I think the most promising way, it's not the only one, but frankly one of the most promising ways to rationally and the more particularly address and confront this issue is through innovative forms of taxation, including progressive wealth taxes and billionaires. So that's why, you know, I think that's the most promising solution.

1:10:48So that's why I spend so much time trying to explain and advocate for it. But, you know, that's not the only one to be sure. Just as we wrap, if you were in front, if you were in a room with the president, the CEOs and leaders of the most valuable tech companies in the world, the billionaires, If you had their ear for a moment, what would be your message that you would want to convey? For the tech billionaires, I would just relay and echo what Jensen Huang, the CEO of NVIDIA, said when he was asked about Prop 40, the California billionaires tax. He said, I don't mind. And this state, California, has been so good for my business, has brought so many good things that, of course, you know, taxes are the price to pay to be based here in Silicon Valley in California.

1:11:49And so I would just echo that and remind them that they owe a lot of their success and their businesses owe a lot of their success to, of course, the thousands of employees that they have and all the knowledge they've been able to build on, which has been accumulated during centuries by all of humanity. but also the universities, the infrastructure, the education that California has provided them and to their workers. And so it's just normal for them to contribute their fair share. Gabriel Zuckman is a professor of economics at the Paris School of Economics, some research professor at the University of California, Berkeley, and founding director of the International Tax Observatory.

1:12:33He is also the founding director of the PSE Stone Center on Global Wealth Dynamics. Gabriel has authored three books, including his most recent work, We Need to Tax Billionaires. Gabriel, this was fascinating, informative. We really appreciate your time. Thanks so much. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carty. Our research team is Dan Chalon, Kristen O'Donoghue and Mia Silverio. Jake McPherson is our social producer. Drew Burrows is our technical director. and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media.

1:13:12If you liked what you heard, give us a follow and we'll be back with a fresh episode on August 31st, two weeks.

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