Podcast Summary:

Plain English with Derek Thompson – "America's Tax System Is Broken"
Date: March 24, 2026 | Guest: Economist Gabriel Zucman

Overview

In this episode, host Derek Thompson engages economist Gabriel Zucman in a probing discussion on why America’s tax system allows billionaires to pay lower average tax rates than many middle-class citizens. The conversation addresses how these disparities arose, the global nature of the phenomenon, the challenges and opportunities in taxing the ultra-wealthy, and the implications of extreme wealth concentration on democracy and society—especially amidst the AI-fueled economic boom.

Key Discussion Points and Insights

1. Who Pays What: Tax Burden Across Income Groups

• Effective Tax Rates:
  • Americans on average pay ~30% of their income in taxes (all forms included) ([05:26]).
  • Working class (bottom 50%): 27–28%.
  • Middle class (next 40%): 30%.
  • Upper middle class (top 10%, excluding the very rich): 32–33%.
  • Billionaires: 23–24%, "significantly below the other groups." ([07:22])
• This pattern makes the US system a "giant flat tax" with the exception of billionaires who pay less, proportionally, than everyone else ([07:26]).

2. Shifting Taxation: How the Rich Paid More in the Past

• Historical Perspective:
  • In the 1950s–60s, corporate and top personal income taxes meant billionaires paid effective rates of 60–70% ([08:32]).
  • Declines in the corporate tax rate (statutory: 50% → 21%), estate tax enforcement, and modest drops in top income taxes drove down tax rates for the richest ([09:44]).
• Modern Changes:
  • Corporate tax avoidance and lack of estate tax enforcement play a big role ([10:40]).

3. Why Do Billionaires Pay So Little Now?

• Source of Wealth:
  • Mega-wealthy are typically owners of capital, not high wage earners ([12:25]).
  • Holding appreciated assets allows deferring or minimizing taxes.
• Legal Loopholes:
  • The main reason billionaires pay so little is legal, not illicit: "If you're extremely wealthy, it's very easy to ensure that you're not going to have a lot of taxable income to report. And there's nothing illegal in that." – Zucman ([23:00])
  • Billionaires can control their incomes, dividends, and capital gains realization “so the individual income tax for the billionaires is largely voluntary, an optional tax.” – Zucman ([19:49])
• Notable Example:
  • Jeff Bezos reported so little income one year, he qualified for the child tax credit – and it was all legal ([24:27]).

4. It's Not Just America: The Global Picture

• "It's not even a Western phenomenon. It's a global phenomenon." – Zucman ([29:34])
  • Studies across Europe, Brazil, and other regions confirm the ultra-rich pay less, sometimes much less (ex: French billionaires pay only 25%, half what the average person pays) ([31:35]).
  • In some European cases, the gap is bigger than in the US due to specific loopholes, e.g., personal holding companies ([32:47]).
• Global failure: “In my view, this failure to tax the super rich at least as much as the rest of the population is one of the major failures of European social democracies.” – Zucman ([33:47])

5. Why Bother: The Practical and Moral Case for Taxing Billionaires

• Moral/values: Basic fairness and maintaining the social contract.
• Practical/economic:
  • There is substantial potential revenue: US billionaires own ~$10 trillion; a 5% annual wealth tax could generate ~$500 billion/year, or ~$6 trillion over a decade ([36:58]).
  • “With a 5% wealth tax, you’re not even reducing their wealth, you’re just slowing the pace of the increase in their wealth.” ([38:03])
• Democracy at stake: Wealth isn’t just money—it’s also political power ([04:02]).

6. The Challenge of Wealth Taxes: Past Failures and Future Fixes

• Few countries maintain wealth taxes; many that tried abolished them (e.g., France) because the truly rich were “legally exempted” ([40:18]).
  • “The bigger you are, the less you have to pay.” In France, the effective wealth tax on billionaires was 0.005% ([41:31]).
• Solution: Strip out loopholes and exemptions; target only true billionaires ([42:59]).
• Other concerns: Outmigration (“people moving to avoid the tax”) is a real issue, especially with sub-national taxes ([43:37]).

7. Case Study: California’s Wealth Tax Ballot Initiative

• Proposal: One-off, 5% tax on billionaires resident on Jan 1, 2026 ([49:18]).
  • Designed so “they cannot avoid the tax by moving to Texas, Miami. It’s just too late.” ([50:16])
• Liquidity concern (cash-poor, asset-rich founders):
  • The tax only applies to net worth >$1 billion. "The vast majority have the liquidity to pay a 5% tax, which is payable over five years" ([54:11]).
  • "When we are talking about just billionaires, the notion that it's going to be a problem ... just doesn't seem very plausible, to be honest." ([54:42])
• Migration risk:
  • Thompson notes that absent guarantees against repeated "one-off" taxes, fear of future taxes could still drive exodus ([51:46], [53:16]).
• Historical parallel: Income taxes started at the state level and then became federal policy ([53:36]).

8. The AI Revolution and Rising Wealth Concentration

• Concern: The AI boom is making many more billionaires, amping up inequality ([56:03]).
• "We are seeing in the data that something is changing...The pace of the increase is now dramatically faster." – Zucman ([57:46])
• "The top 19 households alone can buy the equivalent of 10% of U.S. GDP—much higher than the Gilded Age." ([59:34])
• "This is an important part of the reason why we need to innovate. We need to invent new policies...that will ensure that the super rich contribute at least as much as the rest of the population and will also safeguard democracy." – Zucman ([61:20])

9. The Psychology and Responsibility of Wealth: Then vs. Now

• Thompson contrasts the philanthropy of Gilded Age titans (Rockefeller, Carnegie) with the less generous habits of today’s billionaires ([61:45]).
• Zucman responds: "There's certainly a stronger ideology today that some of these people have according to which they are entitled to living outside of society...They have no duties towards the rest of society." ([63:36])
• Measured giving: Modern US billionaires' charitable giving averages only ~0.6% of wealth per year ([64:19]).

Notable Quotes & Memorable Moments

• "The US tax system is like a giant flat tax ... with one main exception, which is the billionaires, who are significantly below the other groups." – Gabriel Zucman ([07:22])
• "If you're super rich, you can choose to a large extent whether or not to pay the income tax ... the individual income tax for the billionaires is largely voluntary, an optional tax." – Zucman ([19:49])
• "It's not even a Western phenomenon. It's a global phenomenon." – Zucman ([29:34])
• "The bigger you are, the less you have to pay. And the result: on the eve of the abolition of the French wealth tax, the effective tax rate for billionaires in France was 0.005%." – Zucman ([41:26])
• "California needs revenue ... it makes sense to ask those who are both the wealthiest in the state and who also turn out to pay relatively little in tax relative to the rest of the population." – Zucman ([49:24])
• "The notion that it's going to be a problem for them to pay 1% of their wealth in tax each year for five years, that just doesn't seem very plausible, to be honest." – Zucman ([54:42])
• "The top 19 households alone can buy the equivalent of 10% of U.S. GDP—much higher than the Gilded Age." – Zucman ([59:34])
• "There’s certainly a stronger ideology today that some of these people have according to which they are entitled to living outside of society. They have no duties towards the rest of society." – Zucman ([63:36])

Important Timestamps

• [05:09–07:26] – Intro to US tax rates by group
• [07:35–09:42] – Historical context: how billionaires used to pay more
• [14:11–20:36] – Mechanisms for billionaire tax avoidance; why it's mostly legal
• [29:34–34:26] – Tax system failures in Europe and around the world
• [36:03–39:56] – The pragmatic case for taxing extreme wealth; potential government revenue
• [39:56–44:12] – Why past wealth taxes failed; how to do it right
• [47:18–56:03] – The California proposal, the debate over liquidity, migration, and broader trends
• [56:03–61:45] – AI, wealth concentration, and urgency for reform
• [61:45–65:00] – Culture of wealth: modern billionaires vs. Gilded Age; declining philanthropy

Conclusion

This episode delivers a clear-eyed exploration of the problems at the heart of America's tax code—and much of the world’s—in the era of radical inequality. Gabriel Zucman’s research and plain language help listeners understand not just how billionaires pay so little, but why, what could be done about it, and why it matters for the future of both democracy and the economy.