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

Ed Elson is joined by Gabriel Zucman to break down Prop 40, the billionaire tax proposal in California. They discuss why Gabriel thinks it’s the most effective way to tax the ultrawealthy in the state, unpack the various criticisms of the tax, and consider what its influence could be on the rest of the country. Gabriel Zucman is a Professor of economics at the Paris School of Economics, Summer Research Professor at the University of California, Berkeley, and founding Director of the International Tax Observatory. He 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. Subscribe to the Prof G Markets Youtube Channel Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends, like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra because it's not just a superior light beer. It's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser-Busch InBev Michelob Ultra Beer, St. Louis, Missouri.

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• 1:04Speaker 03

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• 1:17Speaker 04

  Prescription Botox is injected by your doctor. Effects of Botox may spread hours to weeks after injection, causing serious symptoms. Alert your doctor right away as difficulty swallowing, speaking, breathing, eye problems or muscle weakness can be signs of a life-threatening condition. Patients with these conditions before injection are at highest risk. Side effects may include allergic reactions, neck and injection site pain, fatigue and headache. Allergic reactions can include rash, welts, asthma symptoms and dizziness. Don't receive Botox if there's a skin infection. Tell your doctor your medical history, muscle or nerve conditions, including ALS, Lou Gehrig's disease, myasthenia gravis or Lambert Eaton syndrome, and medications, including botulinum toxins, as these may increase the risk of serious side effects.

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• 2:00Speaker 05

  Listen to me. Markets are bigger than us. What you have here is a structural change in the world distribution. Cash is trash. Stocks look pretty attractive. Something's going to break. Forget about it.

• 2:12Ed Elson?

  Welcome to Prof G Markets. At the height of the Gilded Age, the top 0.00001% held wealth equivalent to 4% of the nation's GDP. Today, that number has tripled to 14%. By this measurement, wealth inequality is three times worse in America than the Gilded Age peak. Our guest today has spent nearly two decades trying to understand how we got here. French economist Gabriel Zucman has mapped wealth concentration and traced fortunes through tax havens, trying to figure out how the world's richest accumulated so much wealth so fast.

• 2:53Ed Elson?

  Gabriel is the founder and director of the International Tax Observatory and also author of the book, We Need to Tax Billionaires. He advises policymakers around the world on how to tax wealth. Most recently, he helped design California's proposed billionaire tax, which voters will consider in November. In France, he even has a tax named after him, although it has yet to pass. So we wanted to ask him how wealth got this concentrated, what it would take to reverse this trend, and whether a wealth tax is actually the answer. Here is our conversation with Gabriel Zucman. Gabriel, thank you so much for joining us on the show today. I just want to start with a pretty basic question.

• 3:35Ed Elson?

  We've seen some of the inequality statistics. How bad is it and how did we get here?

• 3:41Speaker 07

  Thanks a lot and thanks for having me. One of the most striking evolution of the world economy of the last decade has been the explosion of billionaire wealth, of extreme wealth. Perhaps one number, if you take a global perspective, global billionaires owned wealth equivalent to 3% of world GDP in 1987, which is the first year of the Forbes ranking of global billionaires. And today their wealth is equivalent to 17% of world GDP.

• 4:19Speaker 07

  So we are talking about broadly 3,000 families who, if they spent their wealth, they could buy 17% of the value of all the goods and services produced in a given year globally. And we see this trend everywhere. We see it at the global level. We see it in France, in Europe, and we see it in the US. It's been even stronger in the US where billionaires own wealth that's equivalent to 30% of US GDP and even more in California. Californian billionaires have wealth equivalent to 50% of California's GDP.

• 5:02Speaker 07

  We see this upsurge in extreme wealth. There are different reasons, different factors behind this evolution. One that has been very important has been the dramatic changes in taxation since the 1980s, especially in a country like the US, which used to have one of the most, if not the most progressive tax system in the world in the middle of the 20th century, with corporate tax rates of 50%, with top marginal income tax rates of almost 100%, 90% of the highest

• 5:46Speaker 07

  earners, with top estate tax rates of nearly 80%. That was the reality in the US between the 1930s and the early 1980s. And then went all the way in the opposite direction in the 1980s. To take just one example, when Ronald Reagan entered the White House in 1981, the top marginal income tax rate for the highest earners in the US was 70%, which was at the time the highest among industrialized countries in the world.

• 6:29Speaker 07

  And then in 1986, there is the big Reagan tax reform and the top marginal tax rate is reduced to 28%, which at the time was the lowest among industrialized countries. So in just five years, it is very radical and profound transformation. And there's many reasons to believe that this has been one, not the only, but one of the main engines behind the rise of income and wealth concentration globally and the particularly fast rise of inequality in the US.

• 7:08Ed Elson?

  There's the tax rate, which, as you point out, came down. I assume it was largely a story of trickle-down economics, which sounded, sounded good. And now we kind of know where it's led the US in terms of wealth inequality. So there's, there's bringing the number down, but then there are also these other things, like there's tax loopholes. There are, there are these interesting little things in the tax code, an increasingly complex tax code. And there's also the rise of tax havens, which you talk about. Talk a little bit about what else in, in our taxation system changed, because it seems like there's more to it than just the rates.

• 7:50Speaker 07

  True. You're absolutely right that the rates are important, but there is more than that. There is also the explosion of tax avoidance and sometimes tax evasion. And what you have to understand is that tax avoidance, tax evasion, these are not laws of nature. They are largely policy choices.

• 8:16Ed Elson?

  And just to clarify, what is the difference between avoidance and evasion?

• 8:19Speaker 07

  The traditional distinction is that avoidance is legal and evasion is either illegal fraud or is in the gray zone. And often it's in that gray zone between what, you know, what's legal and what's obviously illegal, meaning it, it, it accords with or to some extent with the letter of the law, but not with the spirit of the law.

• 8:49Ed Elson?

  Yes.

• 8:50Speaker 07

  Anyway, what's really important to understand is that these things, they're not, they're not laws of nature and they change a lot over time. So policymakers can choose to fight tax avoidance and evasion, to create the social norms that are going to be conducive of high tax compliance. And that's what happened again in the US in the middle of the 20th century, when you had people like... FDR, who said that how important it was for people to pay their taxes, that taxes were the price to pay for a civilized society,

• 9:31Speaker 07

  like making it normal and good to pay your fair share. Or you can also have policy makers encouraging tax avoidance by saying that, yeah, you know, if you can avoid taxes, that's, that's great. And you should pay the, the least, uh, the smallest amount possible. Anyway, so you have these changes in social norms that have had very concrete implications with two things. One is the growth, the development of a big tax planning, tax avoidance industry.

• 10:12Speaker 07

  There's a whole business now that's very large, much larger than it was forty, fifty years ago, that just helps corporations and the, the rich optimize or avoid their taxes. And the second thing is indeed the rise of global tax havens, meaning, uh, countries, often relatively small countries, that offer incentives, that offer special tax deals, uh, to multinational firms or to wealthy families, reduced rates, less tax to pay. But what's important to understand is that this initially was just a handful of countries,

• 10:56Speaker 07

  but then over time, pretty much it has generalized, meaning all countries are playing this game of trying to attract some profits, some activities, some rich people at the expense of their neighbors. And that's a powerful inequality engine, because this form of international competition is inherently negative sum. It's not growing the pie, it's not growing the world economy. It's just trying to steal a bit of money, uh, from other countries. And so from that perspective, it's, it's zero sum. But in fact, it's way worse than that.

• 11:41Speaker 07

  It's negative sum because the main beneficiaries of that process are multinational firms and rich people. And so it fuels, uh, inequality.

• 11:54Ed Elson?

  There are a lot of people who might listen to this, perhaps wealthy people who think, hear this and think, I pay a lot in taxes. And the statistic that we often hear about is that the top one percent of Americans, uh, pay around forty percent of, or contribute to around forty percent of the tax revenue. What would you say to someone who says, you know, I pay a lot? You're basically saying pay more.

• 12:21Speaker 07

  So a couple of things. Number one, this statistic on the top one percent paying forty percent of tax revenue, that's just if you focus on the federal income tax, so just one tax. But that's misleading, right? Because you have many other taxes. And in particular, state taxes, sales taxes, uh, tend to be quite regressive. And so if you take a comprehensive picture of taxation, if you look at all taxes paid by people at all levels of government, everything included, including payroll taxes, everything.

• 13:00Speaker 07

  What you see is that the top one percent, uh, accounts for about twenty percent of total tax collection in the US, which is roughly their share of income. The top one percent earns twenty percent of all income. And they pay twenty percent of all taxes, meaning their effective tax rate for the top one percent as a group is the same as the average tax rate for the entire population. They don't pay more, they don't pay less. So that's number one. Number two, I would say that in the US, it, it's true that high income, relatively high income professionals,

• 13:44Speaker 07

  uh, pay a decent amount of tax. Uh, they could, in my view, pay more. And I think the US government needs more tax revenue for healthcare, for education, for infrastructure, and so they could pay more. But at that juncture, the big anomaly, the, the big problem, uh, is not with high income professionals, you know, the upper middle class, let's say. It's with the billionaires. The billionaires, they pay much less tax than the rest of the population. So the average tax rate for the entire population in the US is around thirty percent.

• 14:26Speaker 07

  For billionaires, all tax included, it's only twenty four percent. For the top billionaires, the top one hundred wealthiest people, it's around twenty one, twenty two percent. So there is here something that's just not acceptable. That's a violation of the basic principle of equality before the law. Equality before the law, if you apply this principle to tax law, means that wealthier individuals shouldn't be allowed to pay less tax, relatively their income, than the rest of the population. But that's precisely the situation, not for the top one percent as a whole, but for the billionaires.

• 15:11Speaker 07

  It's a very small fraction of the population. But that's where we have a big problem. And the problem is essentially that for billionaires, the income tax doesn't work well. Because when you're extremely rich, it's in fact very easy to structure your wealth such that this wealth will, will generate no or very little taxable income. That's how you have people like Jeff Bezos, or Sergey Brin, or Larry Page. In some years, they have barely or sometimes no taxable income. And it's so they don't have income tax to pay.

• 15:51Speaker 07

  Their companies don't, or until recently, didn't distribute any dividends. They can avoid realizing any capital gains. They don't need to sell their shares. They pay themselves sometimes just one dollar in compensation. And so they just pay, you know, a tiny amount of income tax. And that's not, it's not illegal, it's not tax evasion. You know, it's perfectly legal, that's how the system, the system works. Uh, if you find ways to have no taxable income to report, you have no income tax to pay. And what the recent studies have found

• 16:32Speaker 07

  is that the problem goes way beyond just a few anecdotes or a few case studies. But it's a structural problem, a structural limitation of the income tax. The ultra wealthy are not yet part of it. That's the problem that we need to fix today. So to be clear, the income tax has been, the invention of the income tax has been an incredible democratic revolution. One of the most important economic transformation of the twentieth century. It happened at the beginning of the twentieth century in different countries at half of the same time, in the US in nineteen thirteen.

• 17:13Speaker 07

  And then the income tax became quite progressive during the course of the twentieth century. A main, a major source of government revenue. This is what has allowed countries to build their modern tax system and in turn to invest in what has been the key driver of economic growth, which is education for all, healthcare, public infrastructure, and so on. So it's been really important, but this revolution is an unfinished revolution because the ultra wealthy are not yet part of the system.

• 17:52Ed Elson?

  One of the things that we talk about is this idea of the buy, borrow, die strategy. Because when you talk about those billionaires, they're not paying themselves. The value of their equity is just going up and that's how they're rich. But then there's this question of like, okay, well, how do you pay for your life? And our understanding is that you borrow against your assets. And that is not, because you're basically just borrowing against your billions. You're not, you know, that's not, you're not realizing a taxable event. Could you talk a little bit about this borrowing strategy and the extent to which you think it is, uh, a real problem in terms of the lifestyles of billionaires?

• 18:37Ed Elson?

  How they're able to fund their lifestyles without really paying anything in taxes? At least on, on the income side?

• 18:44Speaker 07

  Yeah, you're, you're right that, that this is how often they fund their consumption, their lifestyle. They don't realize any income, they don't pay income tax, they don't have taxable income. But to pay their personal consumption expenditure, their yards, their vacation, okay, they borrow a little bit of money. And there's a whole industry, the whole part of the financial industry, that does just that, that provides liquidity to ultra wealthy individuals to fund their lifestyle. And what's important to understand is that sometimes there is this idea that,

• 19:29Speaker 07

  oh, why don't we just tax this borrowing and that would fix the problem? But that's not true. Because what's important to understand is that this borrowing is just not very big. It's not very big. Because the consumption of the ultra wealthy is small relative to their true income or relative to their wealth. Right? When you have an income that's in the billions of dollars per year, you're not going to be able to consume a billion dollars per year. That's impossible. Perhaps twenty million, twenty million, but more than that is really, uh, is complicated.

• 20:14Speaker 07

  And so by definition, as you move up the wealth distribution, saving rates tend to converge to almost a hundred percent of income. And consumption becomes very small relative to income. And people, they need to borrow, the billionaires need to borrow only to fund their consumption. So if you tax that borrowing, okay, cool, you're going to tax a few millions per year. But that doesn't get at the heart of the problem, the core of the problem.

• 20:50Speaker 07

  Which is that most of the income of the billionaires, the fraction of their income which is saved, not consumed, would remain tax-free. If you want, in fact, to ensure that billionaires pay their fair share, you need to have some kind of tax that's based on wealth, just because for them, wealth is the right indicator of the ability to pay taxes. And, look, this is something that's been long understood, even in the US, which never had a federal wealth tax, an annual federal wealth tax. There's an estate tax, which is a wealth tax, but just at the time of death. But this has been well-understood for a long time. Let me just mention one example.

• 21:35Speaker 07

  In 1949, there was a commission by, including a number of American economists chaired by the Columbia University economist Carl Schube, and with people like William Vicray, who went on winning the Nobel Prize in Economics, on taxation in Japan. So how to build a tax system, a well-functioning tax system in the new capitalist, post-war democracy? So how does the ideal tax system look like when you build it from scratch? And what those American economists say is that first, number one, you should do like in the US, like us, like the Americans.

• 22:17Speaker 07

  And so in 1949, it meant a highly progressive income tax with rates of up to 80, 90% for the highest earners. But they also said, that's not enough. In addition to that, you need a wealth tax on the super-rich, because for the reasons I just explained, the super-rich can easily avoid the income tax. And Schube, Vicray put in writing, they said, by the way, we should also do that in the US, but it's complicated because of the Supreme Court and what have you. But they said, Japanese do that. And Japan had a wealth tax on the super-rich in 1951, 1952. They abolished it very quickly because they said, it's not bringing any money.

• 23:02Speaker 07

  And of course, you didn't have billionaires or super-rich people in Japan right after World War II. But what I want to explain, what I want to make sure people understand, is that this logic, that in the ideal tax system, you have not only a progressive income tax, not only an estate or inheritance tax for meritocratic reasons, but also an annual tax on extreme wealth. The idea that this is the package, you know, of a well-functioning tax system in a democratic society, this idea has been, in fact, understood for quite some time.

• 23:38Ed Elson?

  We'll be right back after the break. And if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify, or wherever you get your podcasts.

• 23:58Speaker 00

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends, like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra. Because it's not just a superior-like beer, it's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser-Busch InBev Michelob Ultra Beer, St. Louis, Missouri.

• 24:25Speaker 08

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• 24:56Speaker 02

  Chronic migraine is 15 or more headache days a month, each lasting four hours or more.

• 25:01Speaker 03

  Botox, onabotulinum toxin A, prevents headaches in adults with chronic migraine before they start. It's not for those with 14 or fewer headache days a month. It prevents, on average, eight to nine headache days a month versus six to seven for placebo.

• 25:14Speaker 04

  Prescription Botox is injected by your doctor. Effects of Botox may spread hours to weeks after injection, causing serious symptoms. Alert your doctor right away, as difficulty swallowing, speaking, breathing, eye problems or muscle weakness can be signs of a life-threatening condition. Patients with these conditions before injection are at highest risk. Side effects may include allergic reactions, neck and injection site pain, fatigue, and headache. Allergic reactions can include rash, welts, asthma symptoms, and dizziness. Don't receive Botox if there's a skin infection. Tell your doctor your medical history, muscle or nerve conditions, including ALS, Lou Gehrig's disease, myasthenia gravis, or Lambert-Eaton syndrome, and medications, including botulinum toxins, as these may increase the risk of serious side effects.

• 25:50Speaker 02

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• 26:01Ed Elson?

  We're back with Prof G Markets. I think this brings us to the tax proposal that has been capturing all of the headlines, incredibly controversial in California that you helped to design, which is the Billionaire Tax Act, which will be on the ballot in California in November. And the idea is to enact a one-time 5% tax on the wealth of billionaires, which would start to get at part of the problem here, which is that that's, their wealth is probably the best indicator of what we should be actually collecting tax revenue on. There are some criticisms.

• 26:46Ed Elson?

  One of them would be that it's a little bit of a crude way to do it. We're just saying a billion and up. Why not 900 million? Why not 800 million? How do we come up with that number, this arbitrary number? Another would be that it's a one-time tax. Why are we doing it now? What is the timing? Why does the timing make sense? It's not an annual tax, as you said. And then the other is this idea of capital flight. And that is that if you enact something like this, you're going to see a huge exodus of wealthy people simply going into other low-tax states because they won't want to pay the taxes, which will be, in a lot of ways, self-defeating, because you won't actually

• 27:29Ed Elson?

  collect the tax revenue that you wanted to generate. And that does seem to have happened in previous examples in Europe, where European countries have tried wealth taxes, and a lot of them have been repealed because of this issue, where the rich people just leave, they just go somewhere else. What would be your response to these concerns?

• 27:49Speaker 07

  Number one, that is precisely to avoid any risk of exodus, outmigration by very wealthy people, that the California billionaire tax, which will be on the ballot as Prop 40, is a one-time tax. It's been, that's the main reason, because ideally, I agree with you that it should be annual. But it's easier to do an annual tax at a federal level than at a state level, where billionaires can move to another state.

• 28:30Speaker 07

  And so the proponents of this proposition, they said, okay, let's minimize the risk of exodus by making it one-time. And the way it would work is that any billionaire who was a resident of California as of January 1st of 2026 would have to pay the 5% one-time wealth tax, meaning it is impossible for, or nearly impossible, for any billionaire to avoid the tax by moving.

• 29:10Speaker 07

  The only way that they could avoid the tax was by moving to another state before January 1st of 2026. Now, the California billionaire tax, this initiative was announced in November of 2025. So they had just a few weeks at the end of 2025 to cut ties with California and to change state from a tax perspective, to change residency from a tax perspective. And I want to emphasize that doing this is not a matter of just buying a home in Miami or changing some office space or things like that. No, no, no, no, no.

• 29:55Speaker 07

  If you want to be a resident, to be considered as resident in another state, you have to be able to demonstrate that the center of your life is in another state. So you have to change schools for your children, you have to change doctors, you have to change vets, you have to change burial plots. There's a long list of criteria that the California Tax Authority, or New York, they do the same, looks at to determine the residency status, in particular, of very wealthy individuals. And so the best experts in that area of the tax law believe that no billionaire was able

• 30:39Speaker 07

  to successfully move out of California from a tax perspective in just a few weeks at the end of 2025. So, long story short... It is impossible, nearly impossible, to avoid the 5% billionaire tax by moving to another state. That was the main reason for making it one time and designing it like that. Now, I think what is likely to happen if it passes is that it would probably encourage other states to create their own taxes on billionaires.

• 31:23Speaker 07

  So you could see similar ballots happening in some years in Washington State or in Massachusetts and so on. And ultimately, this process might pave the way for federal wealth tax, where it would be much easier to have an annual tax because there's no risk. You cannot avoid the tax by moving to another state. And this is precisely what has happened for the income tax. The income tax first began at the state level, most famously, Wisconsin in 1911 was the first state to create progressive income tax, and then it paved the way for the federal

• 32:06Speaker 07

  income tax in 1913. So that's for the annual versus permanent thing. And then your first question was about the kind of arbitrariness of the 1 billion threshold, which I don't disagree with. And so in Prop 40, there is a smoothing mechanism so that it's not like if you are just below 1 billion, you pay 0, and if you're just above 1 billion, you pay 5%. So there is some smoothing.

• 32:39Speaker 07

  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 they are very few in number. So in California, it's just around 250 billionaires, according to Forbes Magazine.

• 33:22Speaker 07

  So they're very visible, so it's relatively easy to value their wealth because about 2/3 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 can 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.

• 33:55Ed Elson?

  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 billionaire's argument would be, you're basically just taking 5% without my consent, even 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?

• 34:38Ed Elson?

  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?

• 34:54Speaker 07

  Well, I think if we're 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% just over the last two years. And we're talking about a 5% tax, and 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 1980s, when average

• 35:36Speaker 07

  income per family simply doubled. If 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.

• 36:20Speaker 07

  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. This 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.

• 37:00Speaker 07

  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.

• 37:39Speaker 07

  But people who have a mortgage, which is the vast majority of homeowners, the property tax relative to the net wealth of those people, if you deduct 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.

• 38:20Ed Elson?

  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, for the unprecedented inequality, the fact that 1 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,

• 39:02Ed Elson?

  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, et cetera, that might get at the problem without necessarily demonizing billionaires for being the problem?

• 39:41Speaker 07

  I 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 relatively low-income Americans, which has been slashed in the federal tax bill of 2025.

• 40:24Speaker 07

  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. Question, 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

• 41:06Speaker 07

  1978, Prop 13, you need a supermajority of 2/3 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. Sure, 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.

• 41:48Speaker 07

  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 thirty, forty 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. And 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.

• 42:30Speaker 07

  We can wait for several decades until they die before we stop making them pay anything. That's not logical. So in the current situation, where there is this hundred billion revenue need, and 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 40. Let me just perhaps mention one thing that I think really clarifies

• 43:12Speaker 07

  the budget situation and the trade-off in all of that. If you can, let's compare two potential tax bases. So you, 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. And on the other, and the other base that I want you to consider is billionaire wealth. The value of all the assets owned by billionaires, in California, two hundred and fifty people. It turns out that today, they are as big.

• 43:53Speaker 07

  Total AGI, total income, for twenty-five million Californian families is as big as the total wealth of two hundred and fifty billionaires. Which means that you get as much tax revenue with a five percent income tax, or an increase in the income tax of five percentage points for everybody in California. Everybody has to pay five percent of their income in taxes, in addition to whatever they currently pay. This generates as much revenue than a five percent tax on the wealth of two hundred and fifty families. Okay, currently, we are not taxing that wealth.

• 44:36Speaker 07

  It is barely taxed, they pay tax only the equivalent of point two percent 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, if you compute this ratio, you know, how big is billionaire wealth relative to total income for the population? The ratio was about ten percent in the nineteen eighties, nineteen nineties. Meaning the government revenue at stake from taxing billionaires were not very high. And I think many people have remained stuck in the nineteen eighties, nineteen nineties, where they think,

• 45:21Speaker 07

  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. And that might have been true at the time, but today that their wealth, you know, 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 under-tax base.

• 45:53Ed Elson?

  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?

• 46:15Speaker 07

  Look, 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 bases 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 are 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.

• 46:57Ed Elson?

  Yeah. Do you see a world where, say this is passed in California, a five percent 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 there is, it's politically possible? And then could you see a world where we start doing more of it? Where we've decide, 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 five percent? And why not go to ten percent? Why not go to twenty percent? The question being, at what point is there a line?

• 47:41Ed Elson?

  Is there a limit in your view as to when this goes too far?

• 47:46Speaker 07

  So 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 one million dollars 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 them. It has never been done.

• 48:29Speaker 07

  And so the whole country, and in fact, the whole world is going to watch at California. And so imagine that it passes, the state gets a hundred billion dollars, 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 would 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.

• 49:13Speaker 07

  Whether the right rate for a state on its own is five percent, or two percent, or one percent, it's difficult to know. It 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, that's the sense of, of history. This will become, this will become annual. And number three, I think there will be a lot of experimentation.

• 49:58Speaker 07

  Meaning we'll start with this one-time five percent tax, then perhaps an annual one percent, annual two percent, other rates. And some people are very frightened about this, the fact that rates might change.

• 50:13Speaker 07

  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. And 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 model 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.

• 50:55Speaker 07

  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.

• 51:14Ed Elson?

  Do you concede 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?

• 51:53Speaker 07

  I think frankly, the risk as we speak today, summer of 2026, is to do too little, not to go too far. The 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, it's 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

• 52:35Speaker 07

  where people who are already veraged 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. Because 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,

• 53:20Speaker 07

  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 the prevailing ideology. It'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.

• 54:01Speaker 07

  And regulating that power is what is urgent today. And I'm concerned about undershooting, underregulating, and about the risk of the continuation of the oligarchic 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.

• 54:40Ed Elson?

  We'll be right back. And just a quick reminder, this show is taking a summer vacation for the next two weeks. So we will be back on August 31st with a fresh episode.

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• 57:05Ed Elson?

  We're back with Profty 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?

• 57:34Speaker 07

  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. Imagine that some person, for some reason, ended up owning $100 trillion in wealth, you know, 99% of the world's wealth.

• 58:15Speaker 07

  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 are 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 US over the last few years,

• 58:56Speaker 07

  the enormous power that's been unleashed by this people like Elon Musk, when he, you know, he bought Twitter in 2022, turned it into a kind of machine for various ideological causes, including the reelection of Donald Trump. This brought him to Washington DC with a quasi-cabinet position, Dodge, 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.

• 59:37Speaker 07

  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 are going to see more and more of that if we don't find a way to regulate extreme wealth.

• 59:58Ed Elson?

  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. And 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,

• 1:00:40Ed Elson?

  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?

• 1:00:55Speaker 07

  No, because the proposal with wealth taxation is not for the government to own assets like in the Soviet Union or in Communist China. The 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...

• 1:01:39Speaker 07

  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 of high quality, 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 twentieth century.

• 1:02:24Speaker 07

  And we need more of that in the 21st century. We're going to have an aging population, which means we need more healthcare. 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, we need to have, we have to invest in, 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, you know, OECD countries and the US, or it comes to creating public infrastructure.

• 1:03:05Speaker 07

  And so we need government revenue and we probably need more than what the US is currently collecting. And the question is, how do we do that in a way that's functional? And it's going, 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 healthcare, because they, you know, don't need those public goods. It's not going to work. So that's why regulating their power is so important.

• 1:03:37Ed Elson?

  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. 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? Is 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, like just accumulating it. But in a sense, they have a claim to private capital.

• 1:04:21Speaker 07

  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 does not make the housing stock publicly owned. So no, it's really different, you know, it's, it's, 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. No, look, the US also has, in fact, and many people have forgotten about that, has a long history with annual wealth taxation at the state level.

• 1:05:02Speaker 07

  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, 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. And, you know, it was not, it was not communist China, or it was not the USSR.

• 1:05:43Speaker 07

  So, and, you know, I think this is, this is really not about this. If you're concerned, I think frankly, if you, if you approach these issues from, like, let's say, a free market perspective, if you're, 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 a 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, you know, everything frankly, a lot of what's happening in this

• 1:06:27Speaker 07

  country in terms of regulatory changes, in terms of lawmaking, is downstream from the absurd in billionaire wealth and in finance. 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.

• 1:06:49Ed Elson?

  Is that important to you? Free markets, a functioning free market economy, does that, is that part of your calculation? Yeah, of course, addressing equality, inequality, but is that part of it for you personally as well?

• 1:07:04Speaker 07

  Yeah, I think it's important to have a well-functioning market economy. I 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, that work well. And I think this is not the case when you have actors who are just too big and powerful.

• 1:07:40Ed Elson?

  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. I 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

• 1:08:24Ed Elson?

  inequality reached a point that it boiled over and turned into physical violence? Is that something you worry about?

• 1:08:31Speaker 07

  I worry about the fact, and I think like most people frankly, that inequality and extreme inequality is corrosive for the social contract. It's just harmful for, for society. And it's, it's, look, this is a deeply held view in, in the US, in America. If you, if you read the founding fathers of this country, if you read James Madison,

• 1:09:07Speaker 07

  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, and imbalanced power. So I think a balanced republic and balanced economy has to come with equality.

• 1:09:50Speaker 07

  And extreme inequality is just inherently corrosive.

• 1:09:54Ed Elson?

  But do you think we are close to, to the situations that we saw in other societies? Is that?

• 1:10:00Speaker 07

  Frankly, it's difficult to, it's difficult to know, you know, it's not, you know, difficult to make predictions, but I don't, I don't think it's a very sustainable path. The current pace where, you know, the billionaires owned, you know, 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, I don't think this is going to continue like that. I do think there's going to be some innovation. And I think the most promising way, it's not the only one, but frankly, one of the most promising way to, to, to rationally

• 1:10:46Speaker 07

  And the mark particularly addressed 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. So that's why I spent so much time trying to explain and advocate for it. But, you know, that's not the only one, to be sure.

• 1:11:08Ed Elson?

  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?

• 1:11:31Speaker 07

  For the tech billionaires, I would just relay and echo what Jensen Huang, you know, the CEO of Nvidia said when he was asked about top forty, the billionaire, California billionaire tax. He said, I don't mind. This state, California, has been so good for my, for my business, has brought so many good things that of course, you know, taxes are the price to, to pay, to, to be based here in Silicon Valley, in California. And 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

• 1:12:12Speaker 07

  that they have, 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.

• 1:12:33Ed Elson?

  Gabriel Zucman is a professor of economics at the Paris School of Economics, summer research professor at the University of California, Berkeley, and founding director of the International Tax Observatory. He is also the founding director of the PSC 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.

• 1:13:01Speaker 07

  Thanks so much.

• 1:13:02Ed Elson?

  This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carti. Our research team is Dan Shalon, Kristin 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. If 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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