Gabriel Zucman: "We Need To Tax Billionaires"

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1:00Hi, it's Michael Smirconish. Welcome to Book Club with Michael Smirconish. A collection of Michael's favorite interviews with authors from the last 30 years through today. On the air, on radio. What sets my book club apart is that I actually read the books. Book Club is now in session. Is it time to tax wealth and not just income? As a matter of fact, five weeks from today, I think I'm right in saying it's five weeks from today, which is the November election conclusion. California voters are going to decide Prop 40, which is a one time 5% tax on the net worth of every billionaire who has lived in the state, or was living in the state as of January 1, 2026. That's roughly 200 people. It brings to mind Gabriel Zuckman and his book, we need to tax billionaires. He's a UC Berkeley and Paris School of Economics professor. He's an expert on wealth inequality and global tax evasion.

2:01He was awarded the John Bates Clark Medal of the American Economic Association for an economist under 40, who has made the most significant contribution to economic thought and knowledge. I'm going to date myself. I think I remember years ago, interviewing Stephen Levit from the University of Chicago at a time when Freakonomics had just hit the market. I think that same designation was awarded to Stephen Levit, which means Professor Zuckman, you are in good company. Thank you for being here. Thanks for having me. So I'm reading the book and very early on, you say it was not until the early 2020s that an international academic research project began to lift the veil, meaning with regard to the income of billionaires. In 2019, my Berkeley colleague, Emmanuel Sayez and myself attempted to estimate U.S. billionaires effective tax rates. You had difficulty doing so. Everybody has had difficulty doing so,

3:02but then you found the Holy Grail. What is the Holy Grail and how were you able to find it? So there's a lot of opacity about the taxes that the Superarriage pay. There's no public information on that. And so the only way to know is to partner with tax administrations, to look at their individual income tax returns. But you also need to do more than that. You need to look at the tax returns of the businesses that they own, because most of their income derives from businesses. And so if you want to have a comprehensive view of how much income they earn and how much tax they pay in total, you need to do this. Analysis of linking people to the companies they own. And so that's what we did in the U.S. and that's what various research teams have been doing all over the world. So now we have studies for about 10 countries. And everywhere we see the same pattern.

4:04We see that billionaires pay much less tax than the rest of the population. But I'm still unclear as to what allowed you to lift the veil. Why wasn't somebody able to do that before you? There's been such great interest in what is the actual tax rate for billionaires. Well, first of all, it's difficult to have access to tax returns. You need to partner with tax administration. And it takes a lot of time and a lot of constraints. And so it's not like these tax returns are in the public domain. So this is really something that can only do internally with administrative tax data at that very confidential. And second, the businesses of the super rich, that's quite complex. They have, for instance, if you look at the top 400 wealthiest Americans from the Forbes magazine list, they own thousands of partnerships, sometimes quite opaque.

5:10And so there's a lot of work that needs to be done to be able to link these various businesses to one another. So the concept of taxing wealth, of taxing something tangible wealth, is that really practical. And what puts it in my head is you make reference to the Forbes 400 list. I remember when Donald Trump was not president. And according to many published accounts, he wanted desperately to be on that list. He would present himself as John Barron, a spokesman for Donald Trump. I assume you know what I'm speaking of. And he was successful. And that said to me that it's, it's a subjective process of determining exactly how much you are worth. So can you really determine what a person is worth at that level and have a specified number and then apply to tax to it? Yes, it's possible. And you are right. You have cases like Donald Trump, where there is uncertainty about their wealth.

6:14Some people might want to overestimate or to underestimate their wealth. Many don't want to appear on the Forbes 400. But the important thing to understand is that most of the wealth of billionaires in the US corresponds to shares in publicly listed companies. And that's very easy to observe and to value because if you own more than 5% of the stock of a listed firm, or if you are an executive in that firm, no CEO, chairman of the board, what have you, you have to disclose your stakes in the company, the equity you own, to the securities and exchange commission. And so there is public information about that wealth. And this represents more than 50% of the wealth of US billionaires. This represents almost 70% of the wealth of California's billionaires.

7:17You reminded us that California is going to vote on Proposition 40 in November, 5% one-time wealth tax on the wealth of billionaires, 70% of that wealth is very easy to observe and to value. It corresponds to shares in meta, in alphabet, in video, in big publicly listed companies. What I learned from you, Professor Gabriel Zuckman, in your book, we need to tax billionaires, is that this is Book Club with Michael Smirconish from Sirius XM.

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9:27A Better Help Add. Better Help is one of the world's leading online therapy services. And now, insurance options may be available nationwide with average copays of just $23 per session for eligible members. Better Help works with more than 125 health plans, making it easy to get started with low cost sessions. Don't have eligible insurance. Get 10% off your first month and learn how therapy can help you manage stress at BetterHelp.com. Cost and coverage may vary. Discount cannot be combined with insurance. What I learned from you, Professor Gabriel Zuckman, in your book, we need to tax billionaires is that they pay corporate taxes, but they don't pay income taxes, the billionaires, in any significant way. Explain please to my audience, it is not as if Peter Tio or Elon Musk or Phil in the blank is getting a paycheck every two weeks. So how are they compensated?

10:33Yeah, exactly. The income of these very rich people is not primarily wage income or pension income. Almost all of their income corresponds to dividends from companies they own or capital gains when they sell shares. And it's very easy to minimize that income. And in fact, sometimes to report no of very little taxable income. Let me just give you one example. A few years ago, there were revelations by ProPublica on the taxis paid by USB billionaires and you saw people like Elon Musk or Jeff Bezos reporting very little income in some years paying very little income tax. There's even one year when Bezos says, look, I'm so poor that I'm going to claim the child tax credit and he receives a check from the IRS.

11:33And there's nothing illegal in that. It's how the system works. If you have found ways to report no income, you have no income tax to pay. And so how did it do it? Well, as CEO of Amazon, he didn't pay himself a wage. He instructed the company not to distribute any dividends. And he didn't sell shares in Amazon. And so he didn't have any capital gains to report. And so his taxable income was really low. Even though, of course, he's true economic income, he's wealth, his ability to pay taxes is obviously very high. Okay, I have a naive question, pardon my naivete. So I'm one of the individuals that you are writing about and dividends are being paid directly to one of my holding companies. This I learned from you. I didn't recognize the nature of this process. But my holding companies aren't permitted to pay for my personal expenses. So if I want

12:38a yacht, if I want an extravagant vacation, if I want to buy my fifth home, how am I actually writing that check? Well, the way it works is that there's a whole industry that creates liquidity for the super rich. So concretely, what it means is that they go to the bank and banks lend them some money for their own personal consumption expenditures and they prefer to borrow money and to pay interest on those loans rather than paying their taxes. What's important to understand though is that the problem is not fundamentally this. The problem is not the consumption of the rich that goes tax-free, their consumption is very small, related to their income. They earn hundreds of millions, sometimes billions in income. You cannot consume an income of 500 million dollars. Most of it

13:46is always saved. And as you move up to the very top of the wealth distribution, the saving rate goes to 100% essentially. And all of that saving is done tax-free today. The income tax fails to tax that portion of the income of the very rich. So I want to make sure everybody understands. If you or I earn some income, some wage income, for instance, we first have to pay tax on that income before we can consume or save. The very rich, the earning income, and they can save and reinvest almost 100% of their income without having to pay income tax. And so it creates a snowball effect on wealth, concentration. Their wealth keeps rising faster than the wealth of everybody else who has to pay taxes. Or as our mothers told us, the rich get richer. Exactly, that's what it means.

14:47Something else that you've just said, which I have in my notes that I wanted to make sure that I asked Professor Gabriel Zuppman relative to their overall wealth, their expenditures, their consumption, your word is dwarfed. Consequently, a that tax isn't going to fix what you describe. Fair? Absolutely correct. Consumption tax is like for instance, a VAT, like most countries other than the US have, is never going to fix the problem that the billionaires don't pay their fair share. Because the whole problem is that they consume such a tiny fraction of their income. The middle class, the working class, they consume most of their income. And so consumption taxes of very heavy burden for them for the rich have just negligible. Okay, I'm going to ask you the question of what to do about it. But one more preliminary question, if I might, much of what you write about is grounded in Europe and France in particular.

15:51And I'm unclear as to whether the problem is of the same significance in the United States. Will you address that? Absolutely. So number one, the problem that billionaires largely avoid the income tax, it's a global problem and it's very much true in the US as well. If you look, for instance, at what Larry Page or Sergei Brain or Mark Zuckerberg in California paid in taxes, we've looked at the public record and you can see that in some years they report no income, you know, there are no wages, no dividends, no capital gains, hence no income tax liability. So it's very much a problem for the US today. Now that being said, what we found when we did this international research and I was really surprised by that, is that the problem is even worse elsewhere. It's even worse in Europe,

16:52it's even worse in the rest of the world because in those countries, the super rich have access to another tax avoidance strategy, which is the use of personal holding companies. So they put their wealth in a holding company. The holding company can receive income like dividends, it doesn't have to pay any tax on that income and because the income is paid on paper, not to a person to a company, it's also free from the individual income tax. Now this specific type of tax avoidance does not exist anymore in the US since the 1930s, which doesn't mean that billionaires pay a lot of tax. They have found other ways to avoid income tax, but the consequence of this is that the problem is even worse in Europe, where the effective income tax rate of billionaires in effect is almost 0%, whereas in the US on average, it's more like 8%. It's not a big number, 8%. It's not good.

17:57It's really very low and quite unfair relative to what the middle class pays, but it's a bit better than 0%. So you referenced California, I referenced California, I've read that Peter Tiel and Larry Page reportedly left the state before the cutoff date. Doesn't that suggest that if you get what you're looking for, all we're going to see is a shuffling of the geography for the billionaires, they'll just move somewhere else. So first of all, I very much doubt and the top legal scholars and tax law professionals of the country also very much doubt that any billionaire was able to successfully move out of California in just a few weeks at the end of 2025 to avoid the billionaires. Let me just make sure everybody understands. So the California billionaire tax, Proposition 40, is a tax of 5% of the wealth of billionaires who were resident of California as of January 1 of

19:032026. It was announced at the end of November 2025. So they had just a few weeks at the end of 2025 to move out of the state and avoid the tax. Now moving out of California from a tax perspective is no simple matter. It's not just a matter of buying a home in Florida or moving some businesses. No, no, no, no, no, you have to cut ties with California. You have to change schools for your children. You have to change bets for your pets. You have to change your burial plots. You have to change many, many things. And it's extremely unlikely that any billionaire was able to do that in just a few weeks. So most likely if the position 40 passes in November, those billionaires would have to pay the tax. Now, if there was an annual wealth tax, which I think would be a good idea, for instance, in the state of California, let's say there was an annual tax of 1% on the wealth

20:07of billionaires every year. Some of them would relocate to other states, but all the knowledge that we have, all the academic studies, all the precedents, for instance, Massachusetts increased taxes under reach recently. Many other states have done so, suggests that the loss of tax revenue due to this mobility by some billionaires would be just very small relative to the extra tax revenue collected from the billionaires who would stay in California. They would stay in Silicon Valley because this is what happens. And so everything suggests that it would be worth it by the state of California to do and let's an annual tax at the rate of 1 or 2% per year. Thank you for being so gracious with your time. Gabriel Zuckman, tell me what you want to do about the problem as you've defined it. I think we need to fix this anomaly that exists in our tax systems today, where the billionaires

21:14pay much less tax than other social groups. It's a very serious problem because it's a violation of the basic principle of equality before the law and equality before the tax law in particular. Look, there is a legitimate debate to have about the proper degree of tax progressivity, meaning the extent to which the rich should pay more tax relative to their income than the rest of the population. And it's totally normal for people to disagree about that. Totally fine, but no one fundamentally accepts the notion that the most powerful people in society should be able to pay less tax than the rest of us. This is just unacceptable and so that's the problem that we need to fix. And the simplest and, in fact, frankly, the only way to fix that effectively is with some kind of tax that's based on wealth because income is very

22:16easy to manipulate when you're extreme your rich, but wealth, the value of what you own, mostly shares and companies, it's much, much harder to manipulate. And so that's why in the ideal tax system, you need to have a tax on the wealth of the super rich, not everybody, just the super rich in addition to the income tax. Final question and I promise I will let you go. And I appreciate it the book we need to tax billionaires. I'd never thought seriously about these issues. And I never fully appreciated just how they're able to evade the taxes that the rest of us buy. This is a new way of thinking, right? When you're going to now propose in this context, taxing wealth instead of taxing income. Maybe that's a model that should apply across the board, not just to the billionaires. For most people, the income tax works well because it's just very hard to avoid. You earn wages, you earn retirement income, business income. The income tax is

23:18is okay. In fact, the income tax, frankly, is a major accomplishment, which was created more than a century ago. At the beginning of the 20th century, lots of people were very skeptical. They thought income taxation will never work. It's too hard to measure income. There will be tax evasion. It's impractical. But it's a big success. It's a big democratic success. But it's an unfinished revolution. The super rich have not yet entered the income tax. And so to finish this revolution, we need to create for the billionaires a tax on their wealth to complement the income tax. And by the way, you really didn't say billionaire in the book. You said 100 million and the number is 2% annually. Correct? I just want to button that up before you leave me. True. Yes, the proposal in the book is to create a tax. A minimum tax equal to 2% of wealth for those who have more than 100 million dollars in net wealth. Because this is past this level

24:23of wealth that the income tax tends to vanish. And so that's why we need a wealth tax above that. And if I am worth 100 million dollars and I've paid, I've paid 2% already in tax because I didn't involve myself in all these shenanigans. Are you going to charge me an additional 2% or am I am I satisfied? No, you're good to go. If you've already paid a certain amount of income tax, you're good to go. But if you've avoided taxation, then you should pay extra to raise this minimum of 2% of your wealth. Thank you so much for your willingness to come and explain your proposal. I appreciate it very much. Thanks so much for having me. Traditional home security only alerts you after a break in. And that's too late. Simply safe is changing that. Stop. This is simply safe. Police are on the way. We don't just alert. We help

25:24stop crime before it starts. Plan starting around a dollar a day. Right now, get 60% off your new system with professional monitoring at simplysafe.com slash SXM. Simply safe ahead of crime in real time. Outdoor to turns plans start at $49.99 a month. Visit simplysafe.com slash licenses for alarm license information.