Berkeley Talks: Economist Gabriel Zucman on the benefits of a (modest) billionaire tax

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Ben Hermalin: Welcome everyone. I’m Ben Hermalin. I’m the Executive Vice Chancellor and Provost here at UC Berkeley. It’s my great pleasure to welcome you on behalf of the University of California Berkeley’s Department of Economics and the division of Social Sciences to the 2025 UC Berkeley Stone Center for Wealth and Income Inequality annual lecture. Since 2019, the UC Berkeley Stone Center for Wealth and Income Inequality has served as a campus hub for research, teaching and data curation concerning the causes, nature and consequences of wealth and income inequalities with a special emphasis on the concentration of wealth at the very top. Supported by the James M and Kathleen D Stone Foundation, as part of a global network of centers, the UC Berkeley Stone Center has been, excuse me, instrumental in advancing this important work on campus and beyond.

The center is housed in the UC Berkeley Department of Economics, one of the very top departments in the world, indeed currently tied with four others for the number one ranking in U.S. News and World Report. Beyond the department, the center works in concert with the broader division of social sciences on a number of research projects including the World Income Inequality Database and the World Inequality Report. The work that the center does is always of importance, perhaps no more so than in the current moment as our country and indeed the world struggles with the political and economic consequences of what many refer to as a second Gilded Age. And now, to introduce our speaker, please welcome my colleague, the faculty director of the Stone Center, Professor Emmanuel Saez. 

(Audience applause)

Emmanuel Saez: Thank you, Ben. Thank you everybody for being here. We’ve packed the room to hear Gabriel Zucman give the annual stone lecture on the billionaire tax. So, Gabriel Zucman got his Ph.D. in 2013 at the Paris School of Economics. Then we had the good fortune of having him as a faculty here in Berkeley for about 10 years, and he’s now been back to Paris, but he continues his link with UC Berkeley, and likes to spend the summer managing, in particular our summer school on inequality that starts this week.

So, Gabriel’s research has been about accumulation, distribution, and taxation of global wealth. So, his academic influence has just been enormous in the sense that he’s been able, through very careful measurement, to uncover new striking facts that are very important to understand the development of our societies, eschewing models and really focusing on measurements. So, his work has received numerous awards. So, let me just mention one, the Clark Medal of the American Economic Association for the best Economist under 40. Second only to the Nobel Prize in Economics. So, just wait and see. This one will eventually come.

And there are two more things I want to mention besides the research. One is the organization of research. So, he was the first director of the Stone Center that I now direct, and thanks to the generosity of Jim and Katie Stone, we are able to deploy a lot more funds to study those issues of top wealth and how to address those social issues. In Europe, in Paris he’s founded the EU Tax Observatory that plays a very big role in covering inequity issues in the tax system in Europe. It makes a lot of noise, perhaps even too much for the EU Parliament who decided to fund it. And last thing is what you’ll hear about today, the policy implications of the work. What has amazed me about Gabriel is that he’s not just about documenting the trend, the inexorable rise of wealth concentration in the U.S. and in other countries, but he’s also about bending the curve, thinking about policies that can change the direction of the curve. So, I welcome Gabriel Zucman to tell us about it today. Thank you. (Audience applause)

Gabriel Zucman: Thanks. Thanks a million, and thanks to all of you for being present today. Thanks, Emmanuel. Ben, thanks a lot. Really a great pleasure to tell you about this work on The Billionaire Tax: A Modest Proposal for the 21st Century. And I’m very much looking forward to the conversation and to the questions after this short presentation. The starting point is simple. The starting point is that progressive taxation is a key pillar of modern democracies. Indeed, a progressive system is important for at least three things.

Number one, it is essential to strengthen social cohesion and trust in governments. It’s very difficult to trust governments that takes more money from the poor than from the rich. And we know that social trust, and trust in government in particular, is really a key and giant, in fact of economic development and economic growth. And number two, a progressive tax system is essential just in terms of money, generating revenue to fund education, healthcare, public infrastructure, which again are at the core of the rise of productivity over the last century. And number three, and perhaps most importantly, a progressive tax system. And this is something that has been understood for a long time in a country like the U.S., even though it’s been forgotten a little bit. But it’s essential to keep wealth concentration in check.

Here, the idea is very simple. The idea is that wealth is power. And so, an extreme concentration of wealth means an extreme concentration of power, the power to influence policy, politics, the prevailing ideology, the power to buy competitors, and so on and so on. And the most effective tool to keep wealth concentration in check is with a progressive tax system, because it targets all the forms of wealth accumulation that you can think of. OK, so fundamentally it’s been understood for centuries, for millennia. Plato talked about this many centuries ago, that there is a tension between extreme wealth and democracy.

All right, so what do we know and what’s the problem today? So the problem today, I think, is summarized in that chart, which is very simple. And actually it all starts with work that we conducted about five, six years ago with Emmanuel Saez, that’s the black line here, showing how much tax the different groups of the population pay relative to their income. So, it’s an attempt at measuring the progressivity or the lack of progressivity of our tax systems. If you take the most comprehensive view possible, meaning you include all taxes paid at all levels of government, federal, state, local and so on. And you allocate all those taxes to individuals and you divide that by their income. So, in the X-axis you have the different groups of the population. P0-10 is the 10% of adult individuals with the lowest income. P10-20 is the next decile. And then you can see on the right part of the X-axis there is a zoom all the way up to the super top. That was the innovation of that work, trying to go all the way up to billionaires.

And so, what we found a few years ago in the case of the U.S. is the U.S. tax system that many people view as highly progressive because they have in mind the individual income tax, which to some extent, although you’ll see that’s not really true, but to some extent it’s progressive. Overall, the U.S. tax system looks more like a big flat tax, where the effective tax rate, which is shown on the Y-axis is pretty much the same, around 25, 30% for the different groups of the population with a slight dip at the very top, with billionaires having relatively low tax rates. In any case, not higher than the people just below them or not higher than the middle class. So, that’s what we found, and it created a bit of noise, but more importantly it caught fire in the sense that it inspired a number of researchers in other countries to try to do the same thing and to measure the progressivity of the tax system using similar methods, and often even better than data than what we could have in the U.S., in countries like the Netherlands, in Italy, in France.

And now there’s ongoing work in Brazil, in Sweden, in Norway, really all over the world. And what those researchers found is what’s shown here for three European countries, which is essentially in Europe, the level of taxation is higher than in the U.S.. That’s no big surprise. And so, if you look at what the working class pays, let’s say the bottom 50% of the distribution or what the middle class pays, that’s much more than in the U.S.. And these are high levels of taxation around 40, 50% in a country like France. But everywhere you have this collapse at the very top with billionaires having particularly low effective tax rates. So, that’s the picture that’s emerging from this international collaborative research effort that our tax systems today do not do a good job at taxing the wealthiest individuals in society.

And where is that coming from? So, what’s the problem? The problem is that billionaires have relatively low tax rates because they pay relatively little income tax. I should clarify, it’s very important, and I should have said it, that those graphs include everything. So, meaning for instance include VAT in a country like France, sales taxes in the U.S., corporate taxes and so on and so on. So, the individual tax is just one tax, but in principle it’s a very important one. It’s supposed to be the pillar of tax progressivity. It’s supposed to offset at least the regressivity of indirect taxes like VAT or sales taxes. But what we found is that even though it plays an important role, it fails to tax the super-rich. And that’s due to a number of reasons.

And let me first perhaps mention that we had a feeling, people had a feeling that there was a problem. So, for instance, you’ve had journalistic investigations of that issue, a few years ago you had revelations by the U.S. media, ProPublica on the tax payments of some U.S. billionaires and that showed very low tax rates paid by people like Jeff Bezos or Elon Musk. And so, there was this feeling that OK, yes, there’s a problem, but the value added of that research is to show that this goes way beyond just anecdotes. It’s a reality that we see not only in the U.S. but throughout the world. So, what’s the problem? The problem is that when you’re extremely wealthy, it’s relatively easy to avoid the income tax by structuring your wealth such that this wealth is not going to generate any sizeable amount of taxable income, or even sometimes any taxable income.

And how do you do that? Well, you do that. Number one, you have to understand that for billionaires, the main source of their income and their wealth is just their ownership of big companies. They own and they control big corporations, and so they can just instruct those companies not to distribute any dividend, and they can also avoid realizing capital gains. And so, if they do that, they’re not going to have a lot of taxable income. And we see some of that in the U.S.. In other countries, in addition to that, you have other tax avoidance opportunities. What people do in Europe is that they use holding companies to avoid the income tax. So, the way it works is that instead of owning shares in their businesses directly, they put a intermediate structure, shell companies to some extent between themselves and their wealth. And so, the holding company receives dividends, because those dividends are paid to a company and not to a person, they avoid the individual income tax.

Very interesting. A century ago, in the 1930s, the U.S. had a debate about that. In 1932, there was a series of hearings in the Senate where for instance, someone like JP Morgan was heard by the Senate and testified about his tax payments and he disclosed that he had not paid income tax over the last two preceding years, and it caused a big scandal. And the reason why he paid, and he and other very wealthy people at the time paid so little income tax is precisely because the U.S. billionaires of the time they did that trick. They used holding companies to avoid the income tax. But then people were outraged and they said, “OK, now we’re not going to allow that.” And the U.S. passed a number of anti-avoidance provisions that make it impossible essentially in the U.S. to do the type of tax avoidance through holding companies that wealthy people do in Europe.

So, the U.S. fixed some of that problem a century ago, but it’s very much still a problem in most of the rest of the world. And the consequence of that is shown on that chart here, which is just the same as the first chart, different groups on the X-axis effective tax rate on the Y-axis, except that here it’s just showing the individual income tax. And so, the individual income tax is progressive for most of the population, in the sense that as you can see in these three countries, the tax rate rises sharply, but only up to a point. After roughly the 95th percentile in the Netherlands, the 99.9 percentile in the U.S. and in France, it starts falling. And in the Netherlands and France, it falls all the way to zero, to almost zero. To summarize, that’s what we learned in recent years that people hate it when I say that the people involved in France, but that France is a tax haven for billionaires. Meaning if you’re a billionaire in France, look at the blue line, essentially you pay no income tax, and same in the Netherlands.

What it means is that you take the French billionaires, imagine all of a sudden they were to move all of them to the Cayman Islands, it would make no difference to their tax bill. It would make no difference to the tax revenue collection of France. Same for the Netherlands, same for other countries. The U.S. is not as bad. As you can see, it’s not like the U.S. billionaires pay a lot of tax, but doesn’t go all the way down to zero because of these anti-avoidance rules that were introduced in the 1930s.

All right, so why do we care about all of that? Probably, one of the defining features of the world economy over the last decades has been the enormous rise of global billionaire wealth. And the simplest way to measure that is, and the data of course is imperfect, but the best data source that you have is you take the rankings that are compiled by Forbes magazine since 1987 where they try to track the world billionaires. So, today you have about 3000 billionaires globally according to them, that corresponds to the top 0.0001% worthiest households at the global level. So, one out of 1 million household globally is a billionaire. And if you look at that fraction of the wealth population back in time and you divide their wealth by world GDP, then you get the blue curve. So, what it means is that in 1987, the wealth of billionaires, in short, amounted to the equivalent of 3% of world GDP. And today it’s about 14% of world GDP.

So, another way to put it is that average wealth per adult globally has increased 3.2% a year, average income per adult, 1.3% a year, but average wealth for billionaires has grown 7.1% a year on average net of inflation over this almost four decades period of time. And there are many reasons behind that. Globalization has played a role, various tax changes, but the fact that they pay so little, in fact most of the time zero income tax or nearly zero income tax relative to their economic income has been a powerful contributor. It creates a snowballing effect. If you’re very rich, you earn a lot of income because your businesses are very profitable and you have no tax to pay on that income, it snowballs and your wealth is going to grow mechanically much faster than the wealth of everybody else.

OK, let’s perhaps zoom in on the case of the U.S. and the very, very top of the wealth distribution. So, forget about billionaires, let’s talk about more centibillionaires. Really the very tippy top of the wealth distribution, the 19 richest American households today, so 0.0001% of the wealth distribution, and try to compute their share of wealth, divide their wealth by the total wealth of the U.S.. And you can do that. There was one first estimate in 1913, another one by Fortune magazine in the 1950s, and then the annual estimates by again the Forbes 400 since 1982, and you get that curve. So, Ben talked about a second Gilded Age, but if you look at that chart, here it looks significantly worse than the first Gilded Age. In fact, the first Gilded Age was the big fortunes of the time, the Carnegie’s, and Rockefeller, and so on. Their wealth added up to about 0.8%, just the four richest families of the time, 0.8% of total wealth in the U.S..

And today, if you take the latest data, it’s more 1.8% of the total wealth of the U.S., and nothing seems to be able to, so far, to bend that curve. OK, so what do we do? So, that’s the basic facts. Now, let’s talk a little bit about what’s feasible, and so the progress that’s happening. So, I had the pleasure last year to work with the Brazilian government, because Brazil had the presidency of the G20, and as president of the G20, they wanted to put some new ideas on the agenda. And so, a bit before starting their presidency, they got in touch with me and they said, “OK, what should we do?” The G20, in fact, has been somewhat effective at pushing ideas for more international tax coordination in the past. The G20 was instrumental for instance, in the development of the global minimum tax on multinational companies. In 2021, 130 countries agreed on having a common minimum tax of 15% on multinational firms.

And so, Brazil was like, “OK, what do we do next? What should we do?” And what I thought. I thought, “What should come next is what we were able to do for multinationals. Well, we should be able to do the same for billionaires. So, let’s think about a globally coordinated minimum tax on billionaires.” And so, then Brazil commissioned a report that I wrote last year, that was published actually just one year ago, in 2024. And the baseline proposal is very easy. It’s very simple to understand. You take the global billionaires, those 3000 families, roughly speaking, and you say that each year each of them should pay a minimum amount of tax equal to, let’s say, 2% of their wealth. So some of them, not very many, but some of them might pay more than 2% today, and so for then nothing would change. But if they pay less, then they should pay the difference to reach 2%.

2% is not a big number, 3000 people, it’s a tiny fraction of the world population, but they own a lot of wealth. That’s called wealth concentration, wealth inequality. And because they pay so little today, even that very modest proposal, it’s not about abolish billionaires. To be clear, abolish billionaires would be 100%. Sometimes people say, “Well that’s communism.” But no, no, no, communism is 100%. Today is 0.2%, and the proposal is 2%. It’s really not communism, and yet it would generate quite a lot of tax revenue, about nearly $250 billion annually at the global level, which you might say, “OK, is that a lot?” 250 is a lot of money. To grasp how big it is, I think the proper comparison is that according to the best estimates that we have, developing countries globally need an additional 500 billion dollars in government revenue each year to face the challenges of climate change. So, you can get half of that money with this modest tax on very few individuals. So, that’s one thing.

What difference would it make? Well, another way to understand how modest it is that chart here, which is starting from the current picture of tax regressivity, that’s the black line, where if you average the data that we have for several countries, you see that on average billionaires pay about 20, 25% of their income in taxes less than other groups. And with the 2% minimum tax, that’s how I pick that rate, it’s the rate that essentially ensures that billionaires wouldn’t pay less than their secretaries or than middle-class individuals more broadly. It wouldn’t make the tax system progressive. So, that’s another way in which it is really very modest proposal and it was designed that way to have legs in a form like the G20 where people have to come together from many different perspectives. But that’s what it would do.

And if you extend the tax to centimillionaires, meaning people who have more than $100 million in wealth, then you would get that flat line here. OK, so bottom line is that with this minimum tax, you are not soaking the rich, you are not making the tax system progressive, you are just erasing something that’s just a bug. It’s very hard to defend. People, and that’s perfectly legitimate, have very different opinions about what’s the proper degree of tax progressivity. It’s a complicated question. It’s easy to overshoot, to undershoot, but I think the vast, vast majority of the population just cannot accept the idea of a world where the most powerful individuals are allowed structurally to pay less than other groups of the population. So, that’s what this proposal would address.

OK, let’s talk a little bit about the challenges. And I’m not going to talk a lot about technicalities or anything like that. I’m very happy to discuss during the discussion. I want just to highlight the one significant, most complex problem, which is of course, what do we do if some countries, and there will be of course many of them, decline to join an agreement like that and to implement such a minimum tax. And so, what I want to say, number one is that global participation in such an agreement is ideal of course, but it’s not necessary. Any country on its own or any coalition of countries could choose to implement such a tax unilaterally. To make it work in a unilateral setting, you just need guard rails against tax competition. And so, you need two things. The most important one is you need to ensure that people cannot just escape the tax by moving abroad, by moving to a non-participating country.

And so, there are different ways to do that. So, the U.S. is unique or almost unique in having taxation based on citizenship. Meaning, if you are a citizen and you move to the Cayman Islands, but you still have to pay taxes in the U.S. as if you were still a tax resident in the U.S., but you don’t have… Most countries don’t do that. Most countries are the opposite extreme and are doing something like, “OK, if you’ve lived all your life in France, for instance, and you became a billionaire in France. And now age 70, you choose to move to the Cayman Islands, then immediately, starting January 1st of next year, France stops taxing you.” And that’s extreme and absurd in the opposite direction. And you could imagine a middle ground where taxes would follow you if you’ve become rich in France for a number of years, perhaps not until you die, but perhaps for 5, 10, 15 years. And that would significantly reduce the risk of tax driven mobility of wealthy people to tax havens.

And the second thing that I want to discuss now is the very important idea that if a country or coalition of countries was implementing this standard, this principle of let’s have a minimum tax and billionaires, there would be good reasons to also ensure that foreign billionaires, those of non-participating countries are asked to pay a bit more tax. So, how would that work? So, the idea here is that there are some forms of extraterritorial taxation that are justified and more than justified that are necessary. And in fact, getting back to the international agreement on the minimum tax for multinationals, in that agreement, and the Trump administration hates that, but in that agreement there is a set of provisions that say that the countries that implement the minimum tax on multinational firms are allowed to tax the multinationals of other countries if they are subject to tax rates of less than 15% in those other countries.

And so, my idea here is just to say, well what we agreed to do, even though it’s controversial, but what we agreed to do one or 30 countries in 2021 for multinationals, again, let’s do it for billionaires. And so concretely, I don’t know, let’s say that a number of countries choose to join that system for billionaires but not the U.S.. What a country like France would do if it had a minimum tax on billionaires it could say to someone like Elon Musk, I don’t know, just to be concrete for everybody to understand the way it would work in practice could say something like, “OK, look, if you want to… Number one, you derive your wealth from owning Tesla, from owning companies, multinational firms, which in turn are very valuable because they sell cars all over the world, including in France. So, in effect, some of your wealth originates from France or from all of those countries where Tesla sells cars.”

And so, what those countries could say is if Tesla wants to keep having the right to sell cars, it has to come with a certain number of conditions. And one condition is that if you, Elon Musk, don’t pay enough tax in the U.S., you are below 2%. Then we, the countries that uphold this standard, we will collect the difference. We will play the role essentially of tax collector of last resort, collecting the taxes that the U.S. would choose not to collect. And well, you can think of the short way to summarize that is in effect something like tariffs for billionaires, in the sense that it’s conditioning market access to having to pay a minimum amount of tax, but it’s a form of tariff that’s really extremely targeted on tiny fraction of the population. And at a higher level, I think this is going to be an extremely important debate, an idea in the coming years. It’s the idea of how do we reinvent the rules of globalization?

And I think at the core of this reinvention, there has to be this principle that free trade has to be tied to minimum standards on taxation, but also on climate, but also on equal pay, on environment, and so on. And that you cannot just have free trade without being completely silent about those issues. So, those questions of tax justice, of climate justice, of equality more broadly have to be put at the center of the international trade agreements of the future.

OK, so the conclusion is simple, is number one that a minimum tax expressed as a fraction of wealth is the most powerful tool to ensure that the very contribute effectively. There are other policies that you might think about, like people often talk about inheritance tax. Inheritance tax is great, but it comes just once in a long time, and that’s not enough. It’s also this minimum tax, annual minimum tax in billionaires, it’s also a very powerful tool that democracies can mobilize to curb the forces of oligarchy.

Meaning, OK, if there are some untaxed, super powerful, rich billionaires abroad, we are going to collect the taxes that those other countries choose not to collect. And so, by using those targeted extraterritorial measures, that’s how democracies can export minimal standards of justice and sustainability. Thank you so much and I look forward to your questions. (Audience applause)

So there’s questions? Yes.

Moderator: Do you have an opinion where we should start? No.

Gabriel Zucman: Everybody’s …

Moderator: All right. Who wants to go first?

Gabriel Zucman: … wants to ask questions.

Moderator: I’m going to go front to back.

Audience 1: If someone’s wealth is in the form of publicly companies, it’s fairly easy to establish their wealth, but if someone has privately held companies or just wealth in various forms like art, even, it’s not a clear valuation. I just wonder what process you would have for being fairly valuing wealth.

Gabriel Zucman: OK, that’s a very important question. So, you are absolutely right that wealth in publicly-listed companies is a big component of billionaire wealth. So, the numbers are the following. At the global level, about a half of the wealth of global billionaires corresponds to stakes in publicly listed firms for which there is no, by definition, no valuation issue. And that’s true also for the U.S. by the way. The other half, sometimes people are like, “What about the yachts and the Picasso’s?” And look, those things exist, but quantitatively they don’t account for a big fraction of the wealth of billionaires. Most of the other half is stakes in private companies. Now, by definition, because we’re talking about billionaires, these are going to be big, private companies. And we know how to value big private companies. That’s what a thousand of financial analysts do all the time.

Number one, you look at how similar publicly listed firms are valued by the stock market. Firms in the same sector with the same profitability, and you apply those valuation multiples to private companies. And number two, for once we have to give credit to the private equity industry. With private equity you have more and more transactions in private businesses, in large private businesses. And those transactions, every time there’s a transaction of private shares that puts a value on the firm. And so, what you could do is something we had proposed in our book with Emmanuel, the Triumph of Injustice in 2019 is that those transactions could be made reportable to the IRS or to the tax authority which would then use those transactions to value the private businesses.

At a high level, what’s most important to understand is that for such a tax to work, it has to be pre-populated by the tax administration. The tax administration has to send a form to the super rich saying, “Look, based on the information we get, including from those private share transactions, based on the standard valuation methods that we use, we think your wealth is X.” And then the taxpayers, they can try to protest, they can try to say, “No, no, I’m much poorer than that up.” But then the tax administration could say, “Well OK, if you think you’re much poorer, then we’re going to ask you to pay the tax with shares of your company. So that if you undervalue, it’s going to be neutral for the government. The government gets shares that it can then resell to the highest bidder.”

So, it’s a very important point, but what I want to say, the spirit of my answer is that this is a technical problem that has actual economic solutions.

Audience 2: Just a follow-up to that. First of all, I agree with the problem. I agree we need a solution. I’m not entirely convinced, first of all putting the politics of this aside for the moment of getting this. This gentleman raised exactly the question I’m going to have. You’ve got to figure out a way to identify these people and value their assets. I agree there are methodologies for doing it. I’m not sure what the administrative burden of that is going to be. Pretty big, I think, if you identify, but again, those are just issues would have to be dealt with.

What I think you end up with is someone saying, “This is no longer an income. This is not an income, this is a confiscatory tax. This is taking a percentage of people’s assets.” A place we’ve never been, and I’m not sure how many European countries have been there. So, it’s interesting, never going to happen in this administration, let’s be clear. But that’s …

Gabriel Zucman: I did get that.

Audience 2: Yeah, and I’m sure you did, but I’m sure that’s right, but just I want to point out that’s what it’s going to get labeled is confiscatory. It’s not progressive income tax but confiscatory, and I think there’s a big, just a comment, huge burden of getting that through our experience with taxation. As much as I think this is a problem that needs a solution.

Gabriel Zucman: No, absolutely, and to your point, it is how it’s labeled not only in the U.S. but in other countries very much including France. In fact, one thing I forgot to mention but that’s quite interesting is that the French National Assembly in February voted a bill to create this tax, exactly that one, minimum tax of 2% on people with more than a hundred million euros in net wealth. So, it passed the National Assembly, then it was voted down by the Senate in June, just last week. And it’s going to come back. Now it’s really a prominent proposal in the public debate in France, so it’ll come back in the fall, and next year, and so on. And the opponents of the tax in France, they say exactly this. They say it’s confiscated 2%.

So, how to answer that? I think number one, is you have to compare the 2% to the 7% here. So, the wealth of billionaires over four decades on average per year net of inflation has been growing 7% a year. So, with 2%, everything else equal, their wealth would have grown by 5% a year, which would still be much more than the 3% growth rate for the average person globally. So, what this means is that with a 2% minimum tax, you are not reducing wealth concentration, you are not stabilizing wealth concentration, you are just slightly reducing the pace of the increase in wealth concentration. So, that’s one sense in which it’s very, very modest.

Now, of course, 7% is an average, and some people are going to have rates of returns that are less than 7%. Not many of them, but in some cases you can imagine people having a bad year, having no income, or people creating startups for instance, and they’re not yet profitable so they have zero income but a lot of wealth. And so, in that case, what the tax would do is essentially those individuals who don’t have income, they could pay the tax in kind, with shares of the company. And so it’s a very, very modest and gradual socialization indeed of wealth, but at the rate of 2% per year. So, it’s very, very modest, very limited.

I think it’s important in all these debates on wealth taxation to keep in mind that there is a big wealth tax for most people, which is the property tax. For the middle class housing is virtually 100% of their wealth or a big fraction of their wealth, and it’s taxed at rates of 1%, sometimes more than 1% in many states in the U.S., in many countries. And so, why is it OK to have this tax for the middle class and to have nothing for billionaires? There’s an inconsistency here, I would say. But bottom line is that the deep sense in which this is not a confiscation is that if you’d had this tax for decades, you would still have seen a huge increase in the wealth of billionaires, but perhaps not as dramatic as the blue line, but a big increase nonetheless.

Audience 2: I get it. I spent 45 years in Washington, and I’m not convinced this is going to get passed anytime in the near future …

Gabriel Zucman: I’m not holding my breath for the tax to become a reality in the U.S. anytime soon.

Audience 3: I have some agreement with you, and mine is that when it comes to taxation, complexity is the enemy of the good. And one of the problems with the U.S. tax system, and probably some of the other countries though I’m not familiar with them, is that complexity favors the upper end of the income scale because they have the ability to hire experts in finding how to keep their rates as low as possible. And I’ve always wondered about the myth of the marginal rate, because I don’t care what a marginal rate is. All I care about are net rates, and I’m wondering if we wouldn’t be better served whether than adding one more kind of tax that strikes me as somewhat complex is just having revenue taxes, no deductions. I know people love deductions, but I think that every deduction has embedded in it a problem.

So, my question is wouldn’t looking at the system systemically, and one, eliminating the problem of complexity, and the other, if your tax system is more transparent, you might have a zero rate, a 5% rate, a 10% rate and a 25% rate or something like that? I like the VAT tax also, but that’s just me. That it would make the system far better than trying to figure out these ways of taxing people who don’t pay taxes because the system doesn’t do it on its own.

Gabriel Zucman: Absolutely. Yes, complexity is a problem. Having simple rules, I think, is valuable. I think this one is actually quite simple. It’s the idea that no matter what you do, we’re not going to list the myriad ways that rich people can try to avoid the tax. At the end the day, at the end of the year, no matter how you’ve structured things, you have to pay a minimum, you have to pay a minimum. And then, I think everybody can agree with that, that just paying zero, that seems too little if you are a billionaire. So, there has to be a floor that’s higher than zero.

And then the question is, OK, so what should be that floor? What should be that minimum? If you compute the minimum as a percent of income, it doesn’t work, because the very notion of income is just not well-defined for billionaires. They can structure their wealth so that there is no income. So, revenue for the businesses that they own, that would be the idea, because what’s revenue for a person? Gross income. What I want to say is that when you say revenue, so you seem to have in mind gross income before deduction, and that for billionaires this gross income can be zero, can be zero.

There was, in the ProPublica leaks that I mentioned, and there’s one year where Jeff Bezos reports literally zero income or just a few thousand dollars. As CEO of Amazon, he didn’t pay himself a wage. And so, growth on net made no difference. It was just zero growth, zero net. That’s why for the floor to be binding, it has to be expressed as a fraction of wealth. It’s a simple but effective idea.

Audience 4 (muffled, off-mic): What about cash flow?

Gabriel Zucman: No cash flow. All these notions of flows just don’t work.

Audience 4: You had to live … Had you paid cash somewhere, it didn’t all just … Wealth came after …

Moderator: Sorry, I’m going to interject here. Let’s keep the questions and audience going because we do have online participants. I want to make sure they’re getting that as well. Speaking of online, there’s a question from the audience online. “How did you decide on 2% tax? Why not a higher tax rate such as 5%?”

Gabriel Zucman: I have no problem with higher tax rates. I think …

Moderator: That was an anonymous question, by the way.

Gabriel Zucman: To be very clear, the 2% was chosen to obtain this curve. Meaning the blue line, meaning it’s the rate that erases the regressivity at the very top end. I think an objective that almost everybody on this planet should agree with was chosen for that purpose. If I wanted to design tax to reduce wealth inequality, let me tell you, the rate will have to be way higher than that.

Moderator: Let’s go right here next.

Audience 5: You’ve given us examples of bad actors and certainly we feel it every day. Or is there a country, or any countries, more than one country around the world where you see hope or is making any sort of progress toward this?

Gabriel Zucman: Fair question. So, I can tell you a little bit about my experience being involved a little bit with the discussions around the G20, and who was in favor, and who was pushing back. And there were a number of countries that were really supporting the idea. So, Brazil of course, which put that on the agenda was a big proponent, but France also was supportive. There is a bit of schizophrenia, because when it’s discussed at the G20 in Sao Paulo, the French government says, “It’s a great idea,” and then when it’s the same and is discussed in Paris they say, “Ah, it’s terrible.” But at the G20 they were very much in favor.

You had other countries like Mexico are also in favor, strongly in favor. Outside of the G20 you have countries like Spain, like Chile. After France passed a version of that in February, there was a bill that was introduced in parliament in Belgium, mimicked on this. Discussions that are starting, in fact many member states in the European Union. So, there is the beginning of burgeoning initiative here. And the way it could get traction is not through an international agreement, because these things in the current context, it’s not happening. But if you have one or several countries that do it and they do it well, then it could catch fire.

Perhaps a little bit like the VAT, big French export. France was the first country to experiment a VAT in the 1950s, and then all the world’s countries accept the U.S., that’s why I’m not holding my breath for that one. But other countries they then a few years after created their own VAT. And so, I’m not saying this the same is going to happen, but there is a possibility that something like that might happen.

Moderator: Let’s do one more online. “The U.S. has had a wealth tax for a long time. It is the property tax and it is the most burdensome on the middle class. So, why is the very concept of a wealth tax controversial?”

Gabriel Zucman: I endorse this question. What can I say? This is true that U.S. has had a wealth tax. The U.S., in fact, has a long experience with wealth taxation that dates back to the 17th century, to the 18th century, when, in fact, there were in the colonies early forms of wealth taxation that were broader than just taxes on real estate and land, but that were also on financial assets. So-called generalized property taxes were the main source or one of the main source of tax revenue for U.S. states before the creation of the income tax at the beginning of the 20th century. So there’s a very long tradition. In fact, the U.S. pioneered wealth taxation. It’s just that people have forgotten about that history, unfortunately.

Audience 6: Thank you, professor. Fascinating discussion. So, the way I understand the spirit of this policy proposal is that what we are trying to do is maximize on political feasibility, is how I read this. My question is, if we were to do a different optimization and you were to do a diamond-in-size optimal income tax, but for wealth taxes, what would that look like? What do you consider in that model?

Gabriel Zucman: We did that computation a few years ago in a piece in the Brookings Paper, meaning if you want to maxim…. If you think about what’s the wealth tax rate that maximizes tax revenues, that allows you to reach the top of the Laffer curve. You are all familiar with the Laffer curve. When you have tax rates on the X-axis, tax revenues on the Y-axis. So, there is one tax rate that maximizes tax revenues. Emmanuel has done a lot of work for the income tax showing that this Laffer rate is high, perhaps 70%, 75%, that ballpark.

And for wealth, it seems to, according to the computations that we made, and perhaps you can correct me if I forgot the details, but I think it’s around 10%. That’s the wealth tax rate that would maximize tax revenues given the wealth trajectories of billionaires. You always have two types of billionaires. You have people who are on the strongly rising wealth trajectory, their wealth grows 30, 40% a year, and you have more mature wealth, like owners of big established businesses, their wealth is growing more slowly. And when you take that into account to get that, the optimal wealth tax rate essentially depends on the average number of years that people have been billionaires that you can estimate empirically by looking at estimates again from Forbes magazine, and that gives you this 10%.

Audience 7: Thank you so much for these brilliant ideas and for bringing them not only into academia but into the public discussion. It’s really, really brilliant. So, I have many questions, but I’ll just ask you one. The so-called patriotic millionaires in the United States, are you networking with them? Would that help in the political feasibility to bring more of the ultra wealthy in supporting some of your ideas?

Gabriel Zucman: Yes, I know them and I think they’re doing useful work highlighting that even some very rich people understand that there is a need for measures like that. Though, there’s a difference between millionaire and billionaires, and billionaires are much less numerous, and I’ve not found yet any billionaire to come out publicly and strongly and clearly in favor. And I’ve been trying to look for them, and not yet. If you know them, please let me know.

Audience 8: Well, thank you, Gabriel. This is very interesting and thought-provoking. And one question I have is why was this successful in France at the people’s level of government, and will there be a price to pay at the Senate level politically, do you think? What’s the sense of that right now? And what are the points that resonated with the French people, through their assembly?

Gabriel Zucman: OK, let me tell you about French politics. So, French politics is this. So, in the National Assembly it passed even though the left, so all the left parties voted for it and center, center right, far right voted against or abstained. And so, the left is only one third of the seats, and so how did it pass? It passed because, and it passed twice in fact in the National Assembly, so it was not just a blip. It passed because the members of parliament for the center and the right, even though they say they dislike it, they just don’t dare to vote against it. They realize that politically it’s difficult to say, “I’m against the idea that billionaires should have a minimum amount of tax to pay. I am for the right of billionaires to pay zero if they so wish.” A very few elected officials can say such things, and so they prefer just not to vote. And so, that’s how it passed.

And so, what it all means is that it just reflects the fact that there is a big democratic pressure from citizens on elected or representatives, which comes from the fact that these ideas, and there has been a lot of polling on that are very, very popular, extremely popular. So, we’re talking about 75%, 80% of people in favor of such policies. And researchers have done work polling. Now, with online surveys, you can do this easily in many countries, and they found that in all countries it’s always the same. And it’s very much true in the U.S., 75%, 80% of voters saying they are in favor of that precise measure. In fact, it’s very difficult, if not impossible to find another concrete economic policy that polls so well. Perhaps the minimum wage would be the one that comes the closest to that. But this is really very, very top of the ranking.

And that’s the fundamental reason why it passed in the National Assembly. And now the Senate in France is not elected by people, it’s elected by mayors and people in regions, but not by the general public, and so they are a bit more insulated from that democratic pressure. However, there’s a famous precedent which is the vote on the income tax in France and National Assembly passed the progressive income tax in 1909 after years, decades of debates. And the Senate, which always is, and already back then was very conservative, blocked the income tax for five years, in 1914, but eventually they voted for it in 1914. And so, it seems to me that really the stakes today are somewhat similar to that, is it going to take five years, three years, one year, 10 years, but eventually I’m relatively optimistic that something like that will see the light of day

Audience 9: In the chart that you showed the differences between countries with different income tax rate, it seems that all the differences converge towards the higher end of the spectrum. And so, number one, why is that? And number two, it seems to me that the way we are framing this problem is that we’re thinking of billionaires as individuals with just more money, whereas there are structurally different. So, they’re not just one person with more money, they’re structurally, qualitatively different than just having more money.

So, one idea would be to have all these countries which would address your guardrails too, is to pool the billionaires together and have a pool of billionaires who should make them independent of their own nationality, and whatever is collected from them will be then distributed to the countries by the amount of contribution of their citizens or whatever it is. In that way, nobody would have an incentive to move from one place to another for the sake of protecting their assets. If it’s all pooled together, that definition of country and nationality and all of that goes away.

And this is a big enough pool for governments to have an incentive to share that information. And as that information, collection processes and social media and technology go around, we’ll be much better able to find out who has what. And then that pool of billionaires becomes an international resource for all countries. So, you mentioned that the 250 billion would solve the global warming. So, that gives the idea that if you want to solve a global problem, you need a global solution for that as well, not an individual one. And that’s exactly like that on the opposite side of it, it seems to me.

Gabriel Zucman: No, that’s a very intriguing idea, and indeed it’s connected to something very important that I just didn’t discuss, which is OK, I assume we had an international agreement to collect that money, where should the money go? And I didn’t talk about that at all. And there are very many different legitimate views on that question. You could say, “OK, the tax revenues that’s collected from U.S. billionaires should stay in the U.S., and that’s where they live, and so on.” But you could also take the opposite perspective, which would be something like that wealth is, they own multinational companies that operate all over the world, that emit carbon that contribute to global warming. They have been very successful because they’ve been able to build on knowledge that has been accumulated by billions of people from all over the world over centuries. And so, you could make the case that this money should be redistributed internationally.

And there have been proposals like that. So, for instance, Esther Duflo has written about this idea of using those 250 billion to fund transfers to the poorest people of poor countries who are the most exposed to climate change. And we know how to do that now with money transfers and cell phones, and things like that. So, that’s a very important debate to have. But pragmatically, before we get to that discussion, we need to collect the money first. That’s why I talk about the money collection problem.

And to the second part of your question, which is OK, how do we … And it was also asked by someone else, how do we know who these individuals are? How can we identify billionaires in the first place? What I would say is that first of all, most of the information already exist because they own shares in big companies, but we need to create extra information. And very concretely what we should do is this. Currently, there is an international exchange of data on multinational companies. That’s been the case since 2016. In those documents we should just add one piece of information, which is asking companies to identify their beneficial owners, meaning all the shareholders who own, let’s say more than 1% of the stock. Just add that piece of information and essentially would allow all countries to track their billionaires.

Audience 10: Thank you for this. I was also going to ask about your proposed tax regime for the extraterritorial billionaires. And my question is what is your anticipated final stage of this? Do you think that, let’s say we implement this, are countries incentivized to start taxing their own billionaires or is it that we just have the ones that agree to it stay? How does this all play out in the end?

Gabriel Zucman: Great question. Great question, because this is indeed what’s beautiful in this type of proposals is what kind of dynamic process does this trigger. So, now imagine that you have a big enough group of countries that say we’re going to tax our billionaires, but also the billionaires of other countries. Where those other countries would have incentives to collect the tax themselves. Not collecting the tax means leaving money on the table for other countries to grab, and so they would say, “OK, we are going to pick the tax, to collect the tax ourselves.” And so, that’s really neat, because it shows how extraterritorial measures like that can not only curb the race to the bottom with capital taxation, which has been a defining feature of international tax policy over the last decades, but also trigger a race to the top where endogenously countries agree on harmonizing their tax rate to that minimum common standard.

Moderator: I think maybe let’s do one more online. “What is the feasibility of a flat rate tax with no allowances for deductions and removing tax shelter concepts?”

Gabriel Zucman: It’s feasible. Whether it’s desirable is another question, and whether it would fix the problems that we have. We had this discussion, the super-rich, to simplify, they don’t have much or sometimes any income. So, whether the income tax is flat or extremely progressive, 90% even 300% if your income is just your reported income, it’s not tax evasion, it’s just that they can legally structure their wealth so that it doesn’t generate income. And when they need money to consume, they get a loan or they do other things. And no matter what the tax rate on this tiny amount of income is going to make no difference. For the very, very top of the wealth distribution, in the ideal tax system, you need some form of tax based on wealth to complement the income tax.

Or to put it differently, the creation of the progressive income tax is perhaps one of the most important economic developments of modern world history. And it’s a revolution that’s been extremely effective. It has generated a lot of revenue essential to build the modern social state, but essentially a bit more than one century. After the start of that revolution, this revolution remains incomplete. The income tax just fails to effectively tax the super-rich. So it needs this complement.

Audience 11: Thanks. Decades ago in the 1950s, I think the marginal tax rate was over 90%. And my question is, it took decades for think tanks, the University of Chicago, Goldwater, Reagan, to reverse the tax landscape from, let’s just call it, high tax to low tax. So, I’m curious, there’s about 3000 billionaires you’ve identified. I imagine those 3000 folks would see your modest proposal as confiscatory, but what about the hundreds of millions of other people who might see this current structure as grossly unfair? But who, structurally, has their hands and feet in the tax structure? And is the current structure a feature of a pre-existing system or one that has been molded to benefit the 3,000 billionaires that currently exist? And how does that get reformed?

Gabriel Zucman: OK, that’s a tough question, but it’s a fair question. And so, of course most of the taxpayers involved, they don’t like the tax and they’re willing to fight it. And so you might say, “Well, it’s hopeless.” What fundamentally should make proponents hopeful is just the simple fact that the history of taxation is full of major reversals and U-turns. So, let me mention perhaps just two or three. So, number one is the U.S.. Before 1913, the income tax had been ruled unconstitutional. So you might … And there was a big movement in the late 19th century, early 20th century to create a progressive income tax with the Supreme Court in the late 19th century said, “No way, it’s unconstitutional.” So you might say, “Game over, this will never happen.” Except that the income tax was created in 1913, and not only was it created in 1913, but then it became extremely progressive.

And there is this famous speech by Franklin Roosevelt in Congress in 1942 when he goes to Congress and he says, “Look, I think that no American should have an income after paying taxes of more than $25,000.” Of the time, the equivalent of $2 million today. “Hence, I propose the creation of 100% tax on all income above $25,000.” And then the Congress people, they’re like, “100%. That’s really a lot.” But they agree on 94%, which is of course not very far from 100%. And then it remains like that pretty much through the 1950s, and even through the 1970s the top marginal income tax rate is still 70%, which at the time is the highest top marginal income tax rate among rich countries. And then you have another revolution. In the very short period of time, 1980, 70%, 1986, the top marginal income tax rate is cut to 28%, which in ’86, 28% was the lowest tax rate of rich countries in just a few years. So, this is just to say that change happens, and sometimes it happens pretty fast and in all directions.

Moderator: I think we have time for one final question. Does anyone have a good one? I saw this hand first. All right. OK.

Audience 12: Thanks. Thanks for coming, professor. Behaviorally, many people’s preferences around taxation connects to notions of deservingness and people’s productivity. What would be your best argument about the relative productivity of individuals across this spectrum?

Gabriel Zucman: I think most people that you become on your own, that wealth, at least to some extent, and we can debate, but at least to some extent, has to be a social creation. The workers of the companies that you own have built that wealth. The government has contributed to that wealth creation through infrastructure, education, and so on. And so, it’s just not possible to make the case that you become a billionaire just like that, and that you should be allowed to pay zero. Thank you.

(Audience applause)

Emmanuel Saez: Thank you. Thank you everybody for this… Thank you, Gabrielle. Thank you for the lively discussion. And so, I invite everybody to come out and have a drink and continue this conversation informally. Thank you. Thank you all to the organizers for such a great event. Thank you.

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