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Foreign.
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This episode is brought to you by Lincoln. Whether it's bonding digitally or exploring the world Together, the 2026 Lincoln Nautilus Hybrid is built for connection with lots of smart tech that helps bring worlds together both on and off the screen. So help turn everydrive into an opportunity for discovery with the 2026 Link Lincoln Nautilus Hybrid learn more at lincoln.com available connectivity features and functionality vary by model. Package pricing, trials and term lengths vary by model. Video streaming and games are only available while parked. You and I are living through the greatest wealth creation moment in human history. The AI boom is minting billionaires at a pace that makes the Gilded Age look modest. Elon Musk could easily be worth half a trillion dollars or more, but by the end of the next few years. And yet the people accumulating this wealth are in many cases paying lower tax rates than their secretaries or their plumbers. There is a value based question here to ask, like is this fair? But there's also a practical question to ask. Is there anything we can do about it? Let's start with values. The US Encourages people to build wealth by starting companies, taking risks, and making things people want. I think those are good things, and we often celebrate these stories. Setting aside owners of Fortune 500 companies, when celebrities like Michael Jordan or Jay Z, Taylor Swift or Rihanna are announced as official billionaires, the news headlines don't say, and they should feel pretty bad about that. We celebrate their net worth as a sign of their success. But what happens to the social contract when it's not just our culture that kneels before ultra wealth, but also our tax code? In the US as in many countries, the very richest Americans pay a lower average tax rate than somebody earning a middle class wage. This is largely because the rich are different from you and me. Most people make money by earning wages, the ultra rich tend to own pieces of companies, and the US Tax code treats wage and corporate income very differently. This is a problem not because wealth is bad, necessarily, but because ultra wealth is ultra power, and concentrated power should concern us. The share of election spending that comes from American billionaires has surged in the last few years to levels that are completely unprecedented. According to the Washington Post, the world's 100 richest Americans contributed almost 10% of all federal election spending in 2024, according to the advocacy group Americans for Tax Fairness. That number might be even higher. The rich aren't going to just light their money on fire for sport. They spend money on elections because they expect to get something in return. Several political scientists in the last 20 years have found that when the very rich disagree with lower income Americans on a topic, the law and regulations passed by government tends to follow the rich. Quick example, just last year Trump's so called big beautiful bill slashed Medicaid spending and expanded something called the section 199A pass through deduction which effectively reduced taxes on a class of small business owners who are often millionaires. Put this story together. The notion that rising inequality and billionaire funded government might occasionally lead health care cuts for the poor and tax cuts for the rich and isn't a conspiracy theory. It's what literally just happened. Today's guest is the economist Gabriel Zucman who has studied inequality and wealth taxes in the US and around the world. We talk about the rich, how they get away with paying so little and what it would take to make them pay a little bit more. Especially on the cusp of a technological revolution that might send inequality soaring yet again. I'm Derek Thompson. This is Plain English SA. This episode of Plain English is presented by Audi. We all know that feeling a change of plans, a new opportunity. Instead of overthinking, what if you just said yes with the all new Audi Q3? The answer is easy. It's made for the yes life. With the power and room to handle whatever pops up. Yes to adventure, yes to right now. Because saying yes without hesitation, that's real luxury. The all new Audi Q3 made for the yes life. Learn more at audiusa.com Gabriel Zucman welcome to the show.
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Thanks for having me on.
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I want to start with a very simple and straightforward question. According to the best analysis, who in America pays the most tax as a share of their income and who pays the least?
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That's an apparently simple question, but it's in fact surprisingly difficult to have a good answer to that question. So let's try to unpack everything. So first of all, on average, Americans pay around 30% of their income in tax, all taxes included. When you add up the income tax, payroll taxes, property taxes, sales taxes at all levels of government, this adds up to 30% of US national income, meaning the average American pays 30% of their income in taxes. Now, if you do that computation for the different social groups, here is what you find. For the working class, meaning the 50% of Americans with the lowest income. So half of the population, their tax rate is a bit lower than 30%, but not much lower, perhaps around 28, 27%. If you look at the middle class. So the next 40%, between the median and the top 10%, they pay around 30% of their income in tax. If you look at the upper middle class, the top 10%, but excluding the truly very rich, they pay a bit more than 30%, perhaps around 32, 33% of their income in tax. But now, if you look at the super rich, if you look at the billionaires, this falls to about 23, 24% of their income in tax. So to summarize, the US tax system is like a giant flat tax, where the different groups of the population roughly pay the same fraction of their income in tax, with one main exception, which is the billionaires, who are significantly below the other groups.
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And this shape of the American tax picture, is this a feature of the 21st century? Or have the extremely rich, the top 0.1%, have they always found a way to pay meaningfully less than the rest of the upper middle class?
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They have paid more in the past. So it's a relatively new development. Historically, in the middle of the 20th century, the super rich paid quite a lot of tax. Not so much through the individual income tax, but they paid a lot indirectly through the corporations that they own. Because what you have to understand is that income for the very rich corresponds mostly not to wages, but to their share of the profits of the companies that they own. And for a long time, the corporate tax was really high in the U.S. the statutory tax rate in the 1950s, 1960s was 50%. And the effective corporate tax rate, what companies effectively paid was also around 50%. So meaning out of any dollar in profit, you had 50 cents that went straight to the government. And then with anything that remained, the companies could pay out dividends, but those dividends were taxed at very high rates also until the 1980, with top marginal income tax rates of up to 90% for the highest incomes in the middle of the 20th century. And so if you try to compute what was the effective tax rate of the super rich in the 1950s, it was more around 60, 70% of their income. And then gradually, it declined from that very high level to about 23, 24% today.
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And why did it decline?
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So the main driver has been the big decline in the corporate tax. The statutory rate fell from 50% to 21% for the federal corporate tax. And the effective corporate tax rate fell even more because corporations started to do more tax avoidance. For a long time, tax avoidance was not considered something that companies should do or that company executives should do. It was considered as part of the duty of a corporation to pay taxes. And so they didn't try to avoid taxes by shifting profits to tax havens, for instance. But this changed in the 1980s. And so the combination of the decline in the statutory rate and the rise of corporate tax avoidance led to a big decline in effective corporate tax rates. And you have to always remember that who benefits from that is essentially the people who own the companies, meaning the shareholders, who tend to be at the top of the wealth distribution. So that played an important role. Second has been the decline in the estate tax. The estate tax used to be a serious wealth tax. The US has, like many countries, a kind of wealth tax, which is the estate tax you pay only once at the time of death. But it used to be significant. There used to be a pretty aggressive enforcement of the estate tax with a lot of auditing in the 1970s, and then this kind of unraveled. The exemption threshold increased a lot. The tax rate for the largest estate declined, and most importantly, the enforcement of the estate tax largely disappeared. Very few estate tax returns are audited since the turn of the 21st century. There's not been a real political will to enforce the estate tax. So that's the second reason. And the third reason is that the individual income tax has also declined a little bit for the very rich. But that's not the main or the most important part of the story. The corporate tax and the estate tax is where a lot of the action has been.
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Is this a fair summary of your description that for the most part, the richest, 0.1%, even 0.01%, these folks are not just high wage earners. They are rich in large part because they start companies that they own large shares of, or they are shareholders in companies that get very rich. And so if you own 10% of a company that's worth $10 billion, the math is simple. That's $1 billion. If you own 7% of a company that's worth 100 billion dollars, that's $7 billion. And so it's these people who are owners of capital that are overrepresented in this group that we're talking about, where tax rates, average tax rates, start to go down. And they've gone down because of changes in average corporate tax rates. And they've gone down because once that wealth is amassed, it's easier to pass on to the next generation through estate taxes, which are laxer than they used to be. I think it's important to say, before we continue to tell this story, that tax analysis, tax politics is a fraught space. There's a lot of debates over how exactly to describe these numbers. There's some analyses that have come to conclusions that seem somewhat alternate to yours. So, for example, David Splinter and Gerald Otten found that the rich today in the US pay a higher share of overall taxes and the poorest pay a lower share of overall taxes than they did in the 1960s when or 1970s. Is someone wrong here or are these ideas compatible? That the rich, for example, might pay a higher share of overall taxes, but their actual tax rate is going down? That might sound a little bit complicated, but maybe you can unpack what exactly that would mean.
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Yeah, that's a good question. And there is indeed a bit of confusion on these issues because people talk about different things. And so what I've been discussing so far is how much the different income groups pay relative to their income. What you're mentioning now is what fraction of total taxes are paid by the different groups of the population and that the range account for a bigger share share of, let's say, federal income tax payments today than in the past. But look, that is a totally different statistic and that's, I think, somewhat misleading statistic because it's affected by the evolution of income inequality. If there is more income inequality than everything else equal, of course the rich are going to account for a bigger share of total tax payments. In the extreme case where all income is earned by just one person, then that person is going to account for 100% of tax payments. But that just reflects the fact that there is a lot of inequality in the economy. And as we know, income inequality has increased quite a lot in the US since the 1980s. That's why it's more meaningful to look at the share of income that's earned by the different groups. And the share earned by the very rich has tended to go up and for each group of the population, what fraction of their income they pay in tax. So that's number one. Second is that some of the confusion comes from the fact that people talk about different things when they mean the rich. The numbers I've cited about the effective tax rate falling to 23, 24% at the very top of the distribution. That's for billionaires. Billionaires, or to be more precise, the households in the Forbes 400 ranking of the wealthiest Americans. That's a very small group of the population. You have 190 million households in the US so the top 1% is 1.9 million households. The top 0.1% is 190,000 households. These are much bigger group than the billionaires. The 400 people on the Forbes 400 or the roughly 1,000 billionaires according to that, that exist in the US according to Forbes magazine. And so the top 1% as a whole, or even the top 0.1% as a whole, they do pay a lot of tax. I think that's clear. The problem is really for the super, super rich, the billionaires, that's where the tax system becomes regressive. But you have to look at really the very top of the distribution. And on that issue, there is one and only one study that was done of that particular question, which is the work that we did with my colleagues Aksane Balkir, Emmanuel Serres and Danny Yeagen, where we were able to look at the taxes, both individual and corporate taxes, business taxes paid by the members of the Forbes 400. And we were, you know, that's the only study that exists. It's the first time that such a study was conducted in any country. And that's how we established that, yeah, everything included, they pay significantly less than other social groups in particular, because when you're extremely wealthy, it's in fact, relatively easy to structure your wealth such that this wealth will not generate a lot of taxable income. And so that's how the truly rich end up having a relatively low income income tax rates. So in principle, the income tax is supposed to be kind of the pillar of tax progressivity. It's supposed to be the way that we make the rich pay their fair share. And to a large extent, this is what it does, except that it's just not the right instrument when it comes to the super rich. So what we've discovered is that the income tax when you're extremely wealthy is kind of optional for you and I. And for most people in the US you have to pay the income tax. You know, there's no choice. You earn wages, you earn pension income, and you have to pay year after year. But when you're super rich, you can choose to a large extent whether or not to pay the income tax. Like if you are the CEO of a big company, you can choose to pay yourself a high wage or not. And many tech, not only tech, but many CEOs of big companies, they choose to pay themselves not a very high wage. If you are the owner of a company or the controlling shareholder of a company, you can decide the dividend distribution policy of the company, whether the firm is going to distribute dividends, and you'll have to pay income tax on that dividend income or not. And most importantly, as a shareholder, you can decide to sell shares and to realize capital gains and to pay taxes on that or not to sell shares. And in that case, you're not going to have to pay income tax. And so that's the fundamental problem essentially, that the, the individual income tax for the billionaires is largely voluntary, an optional tax.
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You've moved to the second chapter of what I want to talk to you about, which is not just the fact, the statistical observation, that billionaires pay a lower average tax rate than middle class Americans, but the reason why, and another cut at this question I think, is, is the biggest reason why billionaires pay less because of legal pathways, because they follow the law or because they understand how to circumvent the law. So you just told a story that I think is a very plausible story that very likely applies to many business owners, right? We have a system of progressive taxes on earned income, wages. And so if you are the owner of a valuable company and you own a large share of that company, well, if you want to minimize your tax burden, it doesn't make sense to pay yourself a wage of $20 million. It makes more sense maybe to structure your payment so that you're getting it from business income or dividend investment income, which is taxed at a lower rate. So that I see in many ways as following the law. You can call it tax avoidance, maybe, but you're essentially following the law that exists in the United States. But there's also less savory pathways that the rich can surely use to minimize their tax burden. After all, they're rich. Rich people can afford whatever they want. And one thing that rich people might want to afford is very talented tax lawyers to move around the system as it's designed by the federal government. So maybe the best way to structure this next question is something like, is it so hard to tax the rich, the super rich, Gabriel, mostly because of the law or because the rich can afford less savory, extralegal pathways around the law.
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It's mostly because of the law which allows them today to avoid the income tax. And so the main reason why the super rich don't pay a lot of income tax is not because they're doing anything illegal. That's not the reason this might happen.
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Right.
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There is some tax fraud, some tax evasion, but that's really not the main driver of their low effective tax rate. It's not because they do very complicated things at, at the border of legality, you know, kind of gray zone, very aggressive tax planning. This exists clearly, you know, but quantitatively, the problem is much more basic than that. The problem is 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. And it was illustrated a few years ago when you had revelations by the media, ProPublica, on the taxes paid by US billionaires. And in some years you saw people like Jeff Bezos, like Elon Musk, reporting very small amounts of taxable income, paying very little in federal income tax in one year. Jeff Bezos even claims the child tax credit and he gets the child tax credit. And there's nothing illegal in that. That's how the income tax works. If you've managed to report very little income, you're considered poor by the tax system, even though your ability to pay taxes and your true economic income, which is your, your share of your company's profits, might be very, very high. Right? So that's what, what's, that's what is really important to understand for someone like Bezos, what is his true income? He owns, let's say, to simplify, 10% of Amazon. If Amazon makes $20 billion in profit and he owns 10% of Amazon, his true economic income is $2 billion. But if those 20 billion in profit are never distributed as dividends by Amazon, and if he doesn't sell shares in Amazon, and if he doesn't pay himself as an executive a high wage, his taxable income, what's reported in his tax return is going to be much, much less than 2 billion and could in fact be close to zero. And so that's not illegal, that's the way the law works. But it just illustrates that the income tax, which was the personal income tax, which was a big revolution a bit more than a century ago, and overall a major achievement, it remains an incomplete revolution. The super rich have not yet entered the realm of income taxation. And so that's why we have this problem today. And that's also why we need to think about different thing, different ways to do things.
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Edward Jones, Member, SIPC it would be one thing if this was just an American problem, right? If America was the only country in the world that hadn't figured out how to keep billionaires paying more than, say, the middle class, someone earning $80,000. But you just finished a study or published a study, I think, in the last few months showing that if you go to France, if you go to Italy, if you go to the Netherlands, these Western European countries that liberals like me in America think are social democracies that get the tax system right in all of those countries, if you look within the 99th percentile. So essentially, basically in the US that'd be going from someone who makes, say, $400,000 to someone who earns several billion a year, tax rates fall throughout that percentile. They fall in France, they fall in Italy, they fall in the Netherlands. Every single country or almost every single country in the west seems to have this same issue of having billionaires or having the ultra wealthy pay significantly less than the middle class. Is that right? And is my description of your analysis right? And if it's right, what does it tell us? That even though we've up to now described this phenomenon a bit like an American phenomenon, it's not an American phenomenon at all. It's a Western phenomenon. It's a modern taxing governments phenomenon like that seems like an important detail here.
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It's very important. It's not even a Western phenomenon. It's a global phenomenon.
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Right. There's no reason to think Malaysia or Vietnam figured this out.
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We have studies for Brazil, for instance now, and there's a growing number of studies that are conducted throughout the world. There's a big international community of researchers that are studying this precise question. How can we measure effective tax rates across the distribution in a way that's maximally comparable across countries? And the findings so far, and it's been a shock for this community, for researchers, is that not only the problem of low billionaire taxation exists everywhere, but in some sense it's even worse in many countries than in the US and in particular, the gap between what billionaires pay and what the rest of the population pays is much higher in a country like France or in Scandinavian countries than it is in the US. Let me just mention the numbers for France. So for France, the average person pays 50% of their income in tax. The different social groups, the working class, the middle class, the upper middle class, pay around 40 to 55% of their income in tax, but for the billionaires, only 25%, only half as much as the average French person. And we see the same pattern in, in the Netherlands, in Sweden, in Norway, in other Western European countries, countries. And so we have a global phenomenon and we have a global problem. And what was interesting, and I really didn't expect that, is that if anything, the US does a little bit better, not much better, but a little bit better. And the reason for that is that in European countries, the income tax goes to nearly zero for the billionaires because of one specific tax avoidance technique which does not exist in the US and this tax avoidance technique is the use of personal holding companies. So essentially, European billionaires put their wealth, which is mostly shares in companies, into wealth holding companies that they fully own and control. And it's those personal holding companies that collect the dividends, but all of that free from the individual income tax. And in the US it used to be like that until the 1930s. But when people discovered that the very rich of the time used this trick, the US changed its law and introduced anti abuse provisions to make it impossible to avoid the Indigo income tax by using holding companies. So that tax avoidance technique plays a big role in Europe and explains why things are even worse in Western European countries than in the US and in fact, 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 because it is such a blatant violation of the core principle of equality before the law. Of course, there is a debate to have, an important, a complicated debate to have about the proper degree of tax progressivity, meaning the extent to which the rich should pay more relative to their income than the rest of the population. And it's normal and natural for people to disagree about that. More conservative people will like less progressivity, more left wing people will want more progressivity. And you know, it's, it's easy to get this wrong, to go too high, to go too low, and it's normal to disagree. But I think nobody or almost nobody accepts or agrees with the possibility that the super rich should be able to pay less than the rest of the population or half as much, like in France, half as much as the rest of the population related to their income.
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Can I pause you there? I want to go a little bit deeper onto this issue because you're making a moral case, a values based case for taxing the ultra rich more. And I'd like to hear a little bit more about the moral case, the values based case. But what I'm really interested in hearing from you is the practical case. What do we as a society get from taxing the ultra rich a little bit more? Do we get an amount of income that would make possible a new welfare program that would significantly reduce poverty? Would we in the US Facing rising deficits and debt, be able to significantly curb the growth in our deficits and debt? Or as some folks say, especially among conservatives, no. If you increase the overall tax rate on folks making more than, let's say five, $10 million a year, if you take that overall tax rate from 20, 25% and you bring it up to the average of 35%, yes, you'll make several tens of billions of dollars, but it's not going to be enough to make a dent in either interest rate payments or in any meaningful welfare program that you would want to newly fund. So maybe tell me a little bit more what you see as the pragmatic case for taxing the ultra rich more.
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Absolutely. So look, we all know that billionaire wealth has exploded and I'm going to focus on billionaires, not people who have 1 million or 10 million in income, but people whose net wealth is above $1 billion. We all know we can look at Forbes magazine and things like that, that their wealth has skyrocketed over the last years and decades. It's been one of the most striking evolution of not only the US Economy, but the global economy. Now the flip side of that is that there's a lot of revenue at stake now with Taxing the billionaires when extreme wealth didn't exist or was much smaller than it is today, which was the case after World War II, broadly speaking, the revenue stake, the government revenue stakes from taxing the super rich were indeed quite limited. So that argument that you're making that there's just not a ton of money at stake for health care or child care or what have you, it made some sense, but now the situation is really different. So here's the arithmetic. It's very simple. US billionaires, collectively, they own around $10 trillion in wealth. So let's say that you tax them at 5%. Let's say you have a wealth tax which is equal to 5% of their wealth annually. 5% annually. So if it's well designed and it has no loophole so you can't avoid, could generate up to 500 billion per year in tax revenue per year. So over the 10 years budget window, which is used a lot in all those debates in DC, you have to multiply by about 12. So we are talking about $6 trillion from just taxing billionaires about 1,000 or a bit more than a thousand individuals in the US and then of course you might say, well, their wealth maybe is going to shrink if you tax them at 5% per year. And so ultimately you are not going to collect as much. Well, except that their wealth has been rising on average like 10% a year over the last four decades. Right. So with a 5% wealth tax, you're not even reducing their wealth, you're just slowing the pace of the increase in their wealth. So it's just an illustration that there is in fact quite a lot of money just to be made just because of the upsurge in extreme wealth in America.
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You've opened the Pandora's box that I knew we were going to open in this conversation, which is wealth taxes both around the world and specifically in the U.S. let me ask my first question this way. You have proposed a global minimum tax on billionaires of 2% of their wealth annually. You've advised American politicians, Elizabeth Warren, Bernie Sanders on their own wealth tax proposals. There's currently a proposal on the ballot in California, or we're definitely going to get to that, but start here. If wealth taxes are such a good idea, and even such an obvious idea in a world of rising billionaire wealth, why are so few countries doing it? And in fact, why are some of the countries that have tried a wealth tax, like I believe France, backed off of the wealth tax because they found it didn't work in the first place.
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That's a good question. So you're absolutely right that many countries, especially in Europe, used to have wealth taxes, and most of them abolished their wealth taxes. And the reason is because those wealth taxes worked very poorly. I think the historical and the international experience with wealth taxation, by and large is not compelling. I think the taxes that were implemented were big mistakes. But you can look, and I've studied that history quite extensively, but there are two ways to look at that history, and I'm going to explain why. What were the problems? There's one way which is, okay, we've tried wealth taxes in the past. It didn't really work, hence it will never work. And there's another way which is, okay, let's try to understand what went wrong, what mistakes were made, and whether those problems have solutions. And it turns out they have solutions. The biggest problem was that the truly super rich were legally exempted from those wealth taxes. The law was written in such a way in all those countries. The law said something like, if you own a lot of shares in a company, so for instance, in France, it was if you own more than 25% of the shares of a company, then all this wealth is exempted from the wealth tax. So the bigger you are, the less you have to pay. And the result, the outcome is that on the eve of the abolition of the French wealth tax, the effective wealth tax rate for billionaires in France was 0.005%. So by design, the truly rich were not asked to pay. Now, of course, there's a solution to that, which is, please write the law differently, right? So don't offer exemptions for those who are the wealthiest people in society. If the goal is to tax them, you should not do that. So that was one big problem. And so I think what's really important to understand is that the types of taxes that are discussed nowadays, whether it's the 2% minimum tax proposal that you mentioned or the California ballot initiative, are just completely different from what has been done historically. They're kind of the opposite because they are just on the super rich and not the merely affluent. For instance, in Europe, the wealth taxes used to start at around 1 million euros in wealth or a bit less than that. By contrast, here in what's being discussed, like in California, it's just on billionaires, right? Very different population. But in exchange from kind of applying to just a tiny fraction of the population, there is no exemption whatsoever. If you are a billionaire, you have to pay like 5%. In the case of the Californian ballot initiative, and so that's kind of the totally different philosophy compared to what was done in the past. And so that's one thing. The other problem with past wealth taxes is that they didn't try to do anything to curb the risk of out migration by the wealth. And of course, that's also a problem that has a solution.
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By immigration, you mean there's a wealth tax on a French family and the French family just moves its money to Belgium and then Belgium has a wealth tax and they move their money to the Netherlands. Like that kind of out migration. Or they move themselves. They don't even move the money.
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Yeah, they move themselves, change residence, they move to Switzerland. They change their residence, they go to Switzerland or what have you. And the way it works in France, like in most countries, is once you've moved, starting January 1st of next year, you don't have any tax to pay anymore to France.
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B
Let me pick up the thread because I want to bring it back. I want to bring it back to the US and there's a real, you put your finger on, I think, a really key tension, which is if Iowa passes a wealth tax, well, maybe a lot of those folks in Des Moines are just going to move to Omaha to get away from it. Right. If California passes a wealth tax. And we'll talk about that ballot initiative specifically. Well, a lot of folks right there are already threatening to move to Arizona, Texas, Florida. And that increases the benefit and strengthens the case for making these wealth taxes. You propose it internationally like a Montreal Protocol of wealth taxes, certainly passing it at the federal level, at the national level, so that you don't have this phenomenon of the person in Los Angeles moving to Boise to get away from the wealth tax. And this is where the Constitution comes very strongly into the picture. The Supreme Court in the late 1800s and early 1900s struck down several income tax proposals. Then the US passed the 16th amendment, which said it is now legal for the US government to levy taxes on income. This was an income tax amendment. There's nothing specifically in that amendment, according to some lawyers, that allows the federal government to tax wealth assets. So some people say the biggest problem with an Elizabeth Warren or Bernie Sanders proposal for a wealth tax is that it's constitutionally DOA without another amendment, because there is no right for the federal government to directly tax wealth assets. How do you feel about that constitutional argument at the national level? And then we'll zoom into the states.
- [45:57]
A
I think, number one, that constitutional scholars are divided on that issue. Some of them think, just like you said, that this would be unconstitutional. Other others point to a precedent that existed in the late 18th century and think this could be made constitutional. I'm not a constitutional scholar, so I don't have an opinion on that. But it's certainly a concern that certainly there's a debate, and especially in the current context, given the composition of the current Supreme Court, that there is a risk concern that it could be ruled unconstitutional. And number two, when I look at history and how these evolutions happen historically, it's true that sometimes, not always, but often it involves some kind of constitutional reform. You mentioned the income tax. The Supreme Court in the late 19th century had struck the federal income tax as unconstitutional, but then There was the 16th Amendment and the federal income tax was created and so on. And so perhaps this will involve some constitutional evolution in the future. That's possible.
- [47:19]
B
So, moving to California, because this is really the news of the day where California has a ballot initiative on a wealth tax. I would love you to make your strongest case for the California wealth tax specifically. And I'd especially like you to make the case against a criticism that I hear quite often from the startup community. The startup community says you've got a major liquidity problem with a wealth tax in Silicon Valley because you have a bunch of founders who are technically very wealthy. On paper, they're asset rich, but they're cash poor. Maybe they own 25%, say of a company that's valued at $200 million. Right. So right there that says that their assets, their net worth is $50 million. But maybe they're only paying themselves a wage of $75,000 or less. They're trying to pay themselves as little out of the company to keep the operating income of the company looking healthy for potential investors. And you're going to have folks in Silicon Valley say you have this phenomenon of cash poor asset rich founders throughout the valley who are going to be nailed by this law. And you're going, if you pass this wealth tax in California, you're going to force Silicon Valley to extricate itself out, migrate, to use your term, to Boise or Austin or Miami or whoever wants to except those refugees, those asset rich, cash poor refugees. I hear this argument a lot from my sort of stream of the world against the California wealth tax. I would love to hear your case for the wealth tax and your case against that criticism.
- [49:02]
A
Okay. There's a lot to unpack. So number one, the case for the wealth tax is that California needs revenue, in particular for health care, because obbba, federal funding for healthcare, Medicaid, and so that's just a big for Medicaid. And so there's just a big revenue shortfall here. And so 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, because the patterns that I described for the US as a whole also apply to California, it makes sense to ask them to pay a little bit, especially in a context where their wealth has exploded. So if you look at the wealth of Californian billionaires over the last three years, just the last three years, it has increased by 158%. And the ballot initiative is about making them pay 5% just once. It's one off tax. It's not an annual tax, it's just you have to pay once 5% of your wealth. So relative to this gigantic increase, it's just nothing, to be honest, it's just very little. Now, about the concerns that you raised, Number one, they cannot avoid the tax by moving to Texas, Miami. That's just too late. Because the way it's designed, it's, it's not an annual wealth tax, it's a one off tax that billionaires would have to pay if they are California resident as of 2026 and more precisely as of January 1st of 2026. So it's already too late to move to avoid the tax. And it was designed to be a one off tax precisely because of this concern, which is a real concern, a first order issue of interstate mobility when you do wealth tax at the state level. So if you did it, if it was an annual tax, I think there would be good reasons to be really concerned about an exodus of billionaires out of Silicon Valley.
- [51:29]
B
Is there in the context of a
- [51:31]
A
one off tax, that's not possible.
- [51:33]
B
Is there language in the ballot initiative, and I'm sorry I didn't read it carefully enough to answer this question, Is there language in the ballot initiative that makes it illegal to reenact this tax for a certain period of time?
- [51:46]
A
Not that I know of.
- [51:47]
B
Because you can imagine, you can imagine, and I'm not trying to cart for billionaires here, but I am trying to suggest why the fears of out migration might be more serious than a one off tax. You can imagine that if you're someone hit by a one off tax that costs you, let's just say $10 million one year, that raises money for the state successfully to pay for one year's health care. Well, California's got to keep paying for health care for the next 50 to 50,000 years. What's to stop the state from passing another one off wealth tax which successfully raises money two years later, five years later. And so I think one fear here and one complication is how do you guarantee that a one off is a one off? Because the first thing that you said, I want to be very clear about it, the first thing you said makes so much arithmetic sense, right? Like California needs money. There is an enormous middle class population of California that is already paying more in overall taxes than residents of most other states because average taxes in California tend to be higher. You have this population of ultra wealthy people who have made out so fantastically well from the software revolution leading into the AI revolution. And so you think like, look where the money is, here's where the money is. Let's have a wealth tax to generate more. I understand the motivation, but I can also, I mean, but the backlash and the fear of that migration I think is something to be taken quite seriously here.
- [53:16]
A
Not sure it must be taken seriously. And I think the best way to take it seriously is to look at how things have played out historically in comparable circumstances. And the closest precedent for what's happening in California today is what happened at the beginning of the 20th century at the time of the creation of the income tax, which was first done by states. It's the states that created their own progressive income tax. And then it kind of caught fire and then it became federal policy. And I think it's more likely to play out like that again in the 21st century with wealth taxation. Meaning if California does could encourage other states to do their wealth taxes and eventually could pave the way for some form of federal taxation. And California has already been at the vanguard of big national tax changes. For instance, in 1978 when California passed Prop 13, which capped property tax payments, that was really the harbinger of the Reagan anti tax movement that paved the way for the big tax cuts at the federal level in the 1980s. And so I think it's not impossible that California will once again be at the vanguard, but in the other direction, being the first state to tax to tax billionaires. I should emphasize that we're not talking about people who have 50 million in wealth. Like in your example of okay, someone owns 20% of a company that's worth 250 million, that person would not have to pay the tax because the tax is only owed by those California residents whose net worth is above 1 billion. And you have about 200 such taxpayers and above 1 billion. Most of these people have the Liquidity, the vast majority have the liquidity to pay a 5% tax, which is payable over five years, meaning they would have to pay 1% of their wealth each year for, for five years. So those liquidity concerns, you know, I could, I, I could understand them if the tax was for millionaires or for people with 10 million, 50 million. But when we are talking about just billionaires, 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.
- [56:04]
B
I take that point. Two final questions that I think move us more into the realm of almost philosophy. I have concerns about the execution of a wealth tax in the US at the national level, I'm worried about constitutionality. At the local level, I'm worried about outmigration, avoidance. Even with everything that you said, the fact that it's retroactive, it's looking backward. And so if you move from Los Angeles to Miami, doesn't change the fact that two years ago you were worth a billion dollars. Being as a resident in California, I take that point. I pushed you a little bit on the details of the wealth tax, but I want to scope out a little bit to emphasize my growing sense that something has to be done here. The amount of money that is being made and I think will continue to be made in artificial intelligence, I think is going to send inequality skyrocketing. I think you're going to look at a class of billionaires minted by this technology, often in companies that are privately held, which means that even if you wanted to buy stock in them, you would not have a chance to share in their rising equity. I'm very concerned about how the wave of artificial intelligence is going to change the inequality landscape and change the conversation about inequality in the US And I guess I just wonder how much you're thinking about that. You've been on wealth taxes for a while. You were advising Bernie Sanders on wealth tax many presidential cycles ago. To what extent do you think AI makes this conversation more urgent?
- [57:46]
A
I think it does because we are seeing in the data that something is changing. So I've been following the evolution of wealth concentration in the US for quite some time. And you've had a gradual increase starting in the 1980s in the Share of total wealth owned by the rich, by the super rich. But things have changed over the last 18 months. The pace of the increase is now dramatically faster. So the number which I find most striking is, well, perhaps two numbers. If you look at billionaires, they own about 7% of total U.S. wealth today, as opposed to less than 1% of U.S. wealth in the 1980s. Now, if you look at the truly super rich, I don't know how you want to call them, the oligarchs, the 19 wealthiest households in the west, that's the top 0.00001%. You can construct a very long time series for the share of US wealth owned by this tiny group, because these are always very visible, very well known individuals. And so you can go back to the 19th century, before the Gilded Age. You can look at what happened during the Gilded Age and today in terms of the share of total wealth that they own, that share is almost three times as large as it was at the peak of the Gilded Age. So by that metric, there is much more concentration of wealth today than in 1910, and with a very fast increase in 2024, 2025, and that's continuing today. Perhaps the number that's easiest to understand and most meaningful is if you look at the wealth of these top 19 households relative to US GDP, it's 10% today. Meaning if they spent all their wealth, which of course they don't do, but if they spent all their wealth, they could buy the equivalent of 10% of the value of all the goods and services produced in the US in a given year. And that gives you a sense of the power they have. The power to buy newspapers, the power to influence the prevailing ideology, the power to buy competitors, and so on and so on. And if you compute that number at the peak of the Gilded Age, it was only about 3%. They could buy 3% of all the goods and services produced in a given year in the us and so clearly the combination of the AI revolution with the current political situation, the plutocratic capture of the US Federal government, is leading to something which is unprecedented levels of wealth concentration at the very top of the distribution that have never happened historically in the us. And so I think this is an important part of the reason why we need to innovate. We need to invent the new policies, the new institutions that will account for that situation and that will ensure that the super rich contribute at least as much as the rest of the population and will also safeguard democracy.
- [61:45]
B
My last question for you is actually about the distant past. It's about the Gilded Age. I've always been very interested in the Gilded Age and the degree to which we see echoes of that period. It seems to me that something about the underlying psychology of wealth and what the wealthy owe Society has changed since that period. I don't think John Rockefeller, Andrew Carnegie were great guys. In fact, I'm quite sure based on my reading of history that they were vicious, vicious businessmen. Rockefeller gave away the vast majority of his fortune to various philanthropies. He founded the University of Chicago. Carnegie was a ruthless businessman who also founded top flight universities. Carnegie Mellon, the Carnegie Endowment for Peace gave away more than half of his wealth. I compare their behavior to these strategies of philanthropy or the absence of strategies for philanthropy. For some of today's business titans, the Bezos Musk, the comparison doesn't seem particularly close. Where's Bezos University? What would the Musk Endowment for Peace even be for, I wonder, as someone who studied not only tax rates, not only numbers going back to the late 19th century, but also the nature of the character of wealth going back in the last 150 years. Do you share this suspicion that there's something about the psychology of wealth and what the wealthy owe society that has changed or in a way is it sort of plus a change? I suppose maybe to borrow a very little of your language, that to a certain extent it's the laws that have changed, not the wealthy's relationship to their wealth.
- [63:36]
A
I, I think 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. They build their wealth on their own. They should be allowed to live by their own set of rules, their own laws. And I think that ideology is particularly powerful and prevalent today in the US and perhaps more than at the beginning of the 20th century on the particular question of charitable giving. It's something that we looked at actually that you can quantify by looking at how much they give in their tax returns. And it's true that they don't give a lot. So the charitable giving of the Forbes 400 is equivalent to about 0.6% of their wealth annually. And so these are just very small amounts, especially relative to fast growth of their wealth. And so I think, yes, that provides some kind of hard quantitative evidence for the thesis you were describing.
- [65:01]
B
Gabriel Zucman, thank you very much.
- [65:03]
A
Thank you so much.
- [65:18]
B
This episode is brought to you by Marvel Television's Daredevil Born Again Season two now streaming on Disney. Charlie Cox at Vincent d' Onofrio are back. And Kristen Ritter makes her highly anticipated return as Jessica Jones in an all new season. As Mayor Fisk tightens his grip on New York City, he makes Daredevil as his top target, Matt Murdock fights from the shadows, hoping to bring down Fisk's corrupt empire and reclaim his city. Don't miss Daredevil. Born Again, season two. Now streaming only on Disney.
- [65:50]
A
I didn't expect this. TikTok has more short dramas than I could ever finish. Each episode leaves you wanting the next.
- [65:59]
B
Download TikTok now and try it.