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Understanding the Wealth Tax with Gabriel Zucman


What is your gauge of where the sort of intellectual consensus is among your peers on this right? Now that's a good question. That's a tough question because I think it's fair to say that they're not psyched. Hello and welcome to wise this happening with me your host Crusades well. The Twenty Twenty Democratic primaries is in full swing eating up Trying to think of other news cliches pike at us. We're in the final stretch when that's the news cliche about camping thing. It's just crazy the way the news cliches infect your brain when you work in news and then you have to work hard to knock them out but one of the most interesting axes. excees of disagreement or debate within the Democratic Party in the coalition and among the primary candidates is on taxation and specifically about the proposal that has been proposed by two candidates in the Race Elizabeth Warren and Bernie Sanders to attempt to use the tax system to reduce some of the vast vast inequality in American society and that inequality is you know has been written about talked about a ton. I think it's it's written and talked about basically every candidate in the Democratic Party. At this point I mean it's established very well data. It's not. There's not a whole lot of disagreement about whether there is been rising inequality there's an incredible concentration of wealth and for a long longtime a lot of the discussion about how to deal with that had to do with income taxes and you know income taxes have gotten more aggressive at the federal level over time. There was a cut the top marginal rate in the trump tax cuts. That were passed back in two thousand seventeen that have now taken effect that is exacerbated that inequality and then there's a whole bunch of other features of the tax system that allow people to talk to gain the tax system such that they often pay a lower effective rate than people in the bottom. But all of that is in the context of income. An income income is what we call an economics flow right like it's the amount that flows into your bank account into your household year. What people have not talked about really seriously were proposed until this year is taxing wealth which is a stock right? That's a you know if you think of scrooge mcduck in the vault diving into the balloons right all all of those gold coins sitting in the vault of Scrooge mcduck. That's the wealth. That's the money that he has not the yearly annual income. That's coming into him. And this year two candidates Elizabeth Warren and Bernie Sanders are proposing a wealth tax now the wealth tax would kick in at very high levels who have multiples of millions of dollars in wealth. We focus a little more today on Warren's proposal Rosal just because it was the first proposal and because our guest actually worked on the proposal with her but there are roughly similar there there are a little different of the details but in the same family the sanders worn wealth tax. And the idea here this sort of radical idea or the very new idea that has been introduced in the debate. Is this idea that you tax not just income. Not just what happens every year in terms of the annual salary the annual capital income. You actually tax the store of wealth that you kind of use it or lose it and above fifty million dollars and then above one hundred million dollars in going up. A certain percentage of your wealth is just handed over the government every year. This has I think it's fair to say. This has freaked Wall Street out quite a bit freaked out billionaires. There was a billionaire literally he crying on. CNBC it an interview about this. There has been some speculation that part of the reason. The billionaire Michael Bloomberg got into the race in the Democratic Party which she's recently entered and has been spending fifty million dollars in his first few weeks on adds more than everyone else combined except for the other billionaire. Thomas Dyer that part of the reason that Michael Bloomberg got in specifically was this proposal sle because this proposal would cost Michael Bloomberg hundreds of millions and billions of dollars a year like if enacted the Wealth Tax proposed by Warren and Sanders would represent a significant amount of money that Michael Bloomberg personally and other billionaires would have to pay the US Treasury every year some people even joked and I think Elizabeth Warren has made this case that it's much cheaper for him. I'm to spend hundreds of millions of dollars on ADS now trying to sort of defeat worn in sanders or at least defeat their ideas and proposal than it is to actually pay the tax later so I wanted to kind of look into the details of this like the wealth tax. It's a brand new idea. It's a controversial idea. It has some features on that on its face attracted if you're concerned about inequality but there's a lot of criticisms dozens of it as well and so. There's no one better to talk to then one of the economists who pose the tax who's written about the tax who actually worked with the Warren campaign in developing a guy by the name. I'm of Gabriel Zukerman. He's a French economist but he's a professor at UC Berkeley. He's written a book called the triumph of injustice. How the rich dodge taxes and how to make them pay also the hidden wealth of nations and he is? I think it's fair to say. Probably be foremost expert on the wealth tax. I mean this is what he does. He studies inequality studies the rise of inequality across different nations over time I'm not just in the. US but in other countries in CD outside the OECD and he studies the effect that taxation has on inequality and then how to design taxation policies to reduce inequality a quality. So this is literally what he has devoted his life's work to and he is one of the sort of intellectual architects of revolution. That's happening more broadly in economics. That really really is taking inequality much more seriously than it used to be taken so I just thought well I'm fascinated by this is I think there's one most interesting high stakes debate that's happening in the Democratic primary. It's it's also I should note one of the policies that pulls the best out of everything the wealth tax polls incredibly well among not just Democrats independents and Republicans it gets majority support among Republicans. I mean this is a you know. There's lots of lefty ideas that people say. Oh that's terrible and voters never go forward and they don't support it and sometimes that's true and sometimes it's not if you just look at the polling. This is one of those issues where it is a aggressive policy to reduce inequality that is also very popular across the board. And for that reason I think maybe is the kind of thing that you could actually really. You see a democratic politician and a Democratic Congress and Senate enacting with public support me that can change and so given all that. There's no one better to talk to. About what a wealth tax is why we need one or don't when he won what it will look like then professor Gabriel's how how did you get interested in inequality wanted to study. Yeah look in in the post World War. Two decades inequality was at a low level and it was Stagnating and so it was just not very exciting to study income and wealth inequality at that time but things have changed completely since nineteen. Eight eighty is starting at the beginning of nineteen eighties. We've seen these you'd rise in income and wealth concentration you look for instance at wealth and their share of wealth owned by absorbing one percent wealthiest Americans in one thousand nine hundred eighty seven percent. Today it's about twenty percent percent twenty percent. That's as much as what the Butler ninety percents owns into little. So now we're in the situation where zero point. One percent of the population owns as much wealth as ninety percent of the population so obviously now studying inequality is extremely streaming potent and more. Broadly the notion that we can study the economy as if populated by just one representative agents. economists used to do in the nineteen sixties in the nineteen seventies nineteen eighties. That notion essentially doesn't make sense anymore to fiction seven of the ATF. Agent is dead and distributional questions are making a huge comeback in economics which is just a return turn to the way that economics used to be done before will will too if you get economics in the Nineteenth Century early twentieth century. You'll get the work of classical economists like Ricardo like Adam Smith like Karl Marx. They were very much interested in distributional questions. And now we're getting back to that type of economics the state you just gave his wild. So the one tenth of one percent top wealth holders they had seven percent of the nation's total wealth nineteen eighty. They have twenty percent now which is equal to the bottom ninety percent right correct. What is the story for? What has happened post nineteen eighty here in the US and around the world where we seem similar similar trends so this story is a story of a huge social experiments? In one sense that is the. US has changed policies in a number of areas in the same direction. Erections the tax system used to be very progressive and it has become much less progressive to the extent today. The deck system looks like a giant flat tax. When you take into account or text that levels of government then you look at what has happened? For instance on the labor market. The minimum wage used to be high. The federal minimum demanded has declined a lot. You look at what happened in terms of access to higher education college. Used to be your most free now. It's usually costly finance has been derek and so on and so on so long all those margins in all these policy areas move to us what you could call market fundamentalism and the. US has been extreme in going in that direction. Other countries have adopted some of these policy changes ages but nuts as much and not in as a systematic way as the US and that's the reason why wealth concentration and income inequality having increased mooring the US in other countries. So the store. The sympathetic story about inequality is about essentially increasing gainst particularly to superstar performers. And the the example. That's always given this like so. Let's talk about Lebron James Right. In the pre globalized economy. Lebron James was was limited in the amount of money can make because say he can only sell jerseys in the United States right but now you have a global market and he could sell them in Serbia and he can sell them in China and he can sell them all over the place and so the returns to being as awesome as Lebron. James have grown out size and this is happening in all kinds of different spheres all kinds of labor markets and also capital markets. All kinds of places where the top performers are just situated waited so that they can reap the benefits of their own talents more effectively. What do you think of that as a story for what's happening? It's a story. That a defaced of it makes sense. It's a plausible story. But the problem is that it's not consistent with the facts. That story was true through you should have seen inequality arise pretty much. The same pace all over the world at piecing developed countries because you know globalization that has been a global phenomenon. It's not only in the US that you can earn more by by reaching out to market and so we should have seen the same same process happening in Japan or in France or Germany and the fact is that this is not what has happened so of course inequality. Ali has increased in Japan France and Germany but much less than the US. So let me just mention one statistic to illustrate great this difference if you look now at income so not wealth but income nine thousand nine hundred eighty the top one percent highest income earners in both if the US in western Europe and about ten percent of Torri income today the one percent of twenty percents of took income in the US and in Europe it's twelve percents right summarizing equality in Europe but nothing dramatic as in the US but this gets to a sort of deeper conceptual question which is when you talk about market fundamentalism right. There's a question about when we talk about billionaires in the US those the most extremely wealthy right in that point one percent you talked about is it. That market fundamentalism has allowed essentially market distribution to confirm more and more benefits. Or is it. Actually that like. There's all kinds of what economists would call rent seeking cooperation of policy monopoly that is allowing them to to to sort of extract that kind of wealth to mix Charles both look many billionaires in the come from the financial sector in finance. There's lots of rent-seeking for sure at least the income that you can earn the wealth that you can accumulate in the financial sector depends on financial regulation and financial deregulation. So Oh it's hard to say. Look this is rent-seeking. This is kind of a perfect functioning of perfect markets but in many ways it doesn't matter under so much you know at the end of today would determines how much inequality there is is government policies. And especially the tax system and for most of the twentieth century. US policymakers tried hard to limit the concentration of income and wealth with very very progressive tax system especially high tax rates on capital income an interest and dividends and capital gains and corporate profits and estates. Everything birthing new capital used to be highly tax in the US precisely to prevent the accumulation of ujjwal tunes which were seen as has detrimental to the rest of society. And that's that's very important because people have forgotten about that especially in the US this notion that extreme wealth an extreme concentration of wealth is corrosive for a social contract is deeply rooted in American society. Find that the idea as far back as the founding fathers you read James Madison for instance the father of the US Constitution and he says exactly this. An extreme concentration creation of wealth in a republic is very dangerous because it's going to mean an extreme concentration of power in potato the power to influence who ends policies to influence the democratic process. And that's why the. US full such a long time was trying hard to limit wealth concentration one of the things I like about your work and I've been reading eating a paying close attention to it is. There's this distinction that often gets made in the inequality conversation about pretax income and after tax in redistribution rights. So the idea is like okay. Well there's some sort sort of market institutions that are producing a certain amount of inequality than the government comes and does some taxing you redistributing and then at the end of that. What does it look like? But you've been really focus on just being like look. The tax system is what we what we have to deal with this problem. Let's not over. Think it look at how much the tax system has changed to stop addressing pressing equality and in fact to exacerbate it. What is the story of taxes for the richest from nineteen eighty two now during this period that we've seen this explosion of inequality? The story is a story of dramatic decline in tax progressivity. So to understand that story you need to remember that the US used used to have probably the most progressive tax system in the world in the post World War Two decades with the module income tax rates of as much as has ninety percent on the highest earners top estate tax rates close to eighty percent corporate income tax rate of fifty percent and so on and so Chris so very progressive and sometimes people look at history and say Oh look the. US pretended only pretended to tax the wealthy but in natural facts nobody paid is very high tax rates and what we show now book. Is that actually. That's not true when you take into account or taxes at all levels of government and you quantity effective tax rates paid by each income group. Would you see. Is that in the post World War Two decades the tabs open percent paid around fifty five sixty percent of their income in taxes very high effective income tax rates. And today. It's very different today if you you take a comprehensive view of how much each income group as in Texas what you find is that everybody essentially pays around twenty eight percent of their income in taxes. The working class middle class the upper middle class except for billionaires the four hundred wealthiest Americans who pay aged just twenty three percent of their income in taxes so to summarize now the US Texas looks like a giant flat tax with the same effective tax rate for for each income group accepted the very top where it becomes regressive. Okay but we WANNA stop you there because what you've just said I think people when they think about taxes they tend to. I think the tax discussion at the national levels about federal income tax. When you say that if you look at everyone across all taxes everyone's basically paying twenty percent flat tax? You're counting all the other taxes that are not just the federal income tax absolutely. Yes that's important to understand. We are looking at all federal plus St Plus Chris Local taxes. And you're absolutely right that when you get federal taxes. The Congressional Budget Office does for instance yes these federal all Texas or progressive but state and local taxes of very regressive. Extremely if you've ever covered state government. It's amazing. How much blood? They try to squeezed from the stones of those working class folks in a state when when they have to close budget gaps. And that's because they rely so much on sales sales taxes and other indirect taxes which are usually regressive because of course if you have low income you consume most of their of your income average or if you are extremely wealthy on the other hand you know you can save alert until you don't pay sales taxes so that's the innovation in in our work is trying to take these comprehensive prehensile perspective going beyond throw Texas and incorporating state and local Texas and also trying to take a comprehensive perspective Tiv- on an income because sometimes what happens is people say look rage have high tax rates as a fraction auction of their income but they forget about the fact that for me very wealthy individuals they have much more income than what shows up on the tax x return. Let me let me take one example for reasons which I think is pretty striking. You take the example of Warren Buffett. Warren Buffett. He's the wealth is about eight hundred billion dollars. According to Forbes magazine he's one of the main shareholders of Dr Hathaway. He's taxable income. What shows up on his tax return? We know that because he discloses this himself is around. Twenty million dollars. The reason for that is because he instructs berkshire-hathaway not to pay dividends and so the only income that here from the viewpoint of the tax code is when he sells a few shares and related to be Carol Games and so he has twenty million in taxable income but he's true economic income he's share of Hathaway's profits. It's something like four billion dollars dollars so you see the problem. His wealth is eighty billion. Right he's true. Income is four billion. He's taxable income is twenty million and he's tax rate is twenty five percent of twenty million is something like five million dollars but infect five million. It's essentially zero percent of his truant gun on your person. He's well so that's a great example and one of the things that highly. There's two things at highlights. I think is really interesting. One is most people listening this overwhelming majority. Most of their income comes from their wages. They will or their salaries they work. They are paid for that work and that add income is essentially. You know by design and properly impossible to hide or mess with vis-a-vis the tax system like you just get up and this includes people people like myself who are are well compensated. But it's it's still labor right so it's like there's no wiggle room on that that's what most people most of their income is when when you're dealing with a Warren Buffett that's nothing the wage is not what's making the money it's it's his wealth making money for him and there's a lot more of an ability for gamesmanship has manship there in terms of what you do with that wealth and what you call different streams of it that may or may not come into your act of pocket that you file before the the irs precisely and that gets the heart of the debate in particular the debate about wealth taxation. So today when you're very rich if you're billionaire it's extremely simple to open dozens. Tens of billions of dollars white having having very little taxable income. Right which has one big implication. which is that even if you may the income income tax system more progressive? And there's a need for that and it could be a good thing but even if you did that it wouldn't make any substantial differences ensue effective tax rate of billionaires if you really want to tax billionaires someone like Warren Buffett you need essentially a wealth tax the wealth tax is the proper way to tax extremely wealthy people who can owner turn of wealth. What having needle income so the the other thing that I think this points to is? There's like one basic principle of taxation people probably familiar here with. Is that like. Let's say you own stock right and that stock goes up in value. If you're just holding onto the stock you're not paying income taxes on going up in value unless you sell the stock dividend from it in which case you realize those gains and they come into US income. What you're saying in the case? Warren Buffett is you just hold on to it let it increase in its value. Your wealth is going up. You don't have to pay taxes. Of course that runs out at a certain point and it's a point that even the most ingenious billionaire cannot escape. which is that they die? which goes back to Thomas? Jefferson's famous lied about death and taxes taxes and that is why the estate taxes so important. That's why the rich and the coke brothers and the Republicans have gone after the estate tax. Because because the one inescapable point of tax actualization is that when Warren Buffett dies or any billionaire dies yet. Can't get away with not dealing with your unrealized realized gains anymore because the estate is there. Yes that's why they care so much and that's why they've been so aggressive when it comes to undermining undermining the estate right and that's a dramatic change that has happened since the nineteen seventies in one thousand nine hundred seventy S V v estate tax connected in terms of tax revenue the equivalent of zero point two percent of tool wealth. If you take the total wealth of Kevin Watkins what was paid a state tax. Was your point two percent of that each year today. It's zero point zero three percent percents after the wealth. So it's been divided by a factor of six why essentially because of the increase in tax avoidance the creation of trusts the use of valuation discounts. You have a huge industry that does nothing nothing but help the very wealthy minimize their estate tax bill precisely for the reason that you mentioned. It's because that's the only tags for many any of them That they would ever pay. And so that is a problem which is only rely on the estate tax because for some reason linnea finds a way to avoid the estate tax. Okay that person is is never going to pay any substantial amount of of taxes. And that's another reason. Why instead of relying so much on estate state taxation you'd probably like to have an annual wealth tax? The beauty of the annual wealth tax is even funnier Someone finds a way to avoid it. Did you know because it's every year the skin find ways to enforce it better and you make. DNS Pay their fair share in taxes. Let's get into does some basic questions about how the wealth tax would actually work right after this break. Everyone Steve Kornacki here. We have heard explosive testimony from key witnesses in the public impeachment hearings. So what's next. As the case for impeachment been made could the President Coun- Republican support in a Senate trial. And how could it affect the twenty twenty election. While every Monday Wednesday and Friday I talked to. NBC News reporters to answer these questions and more on article two inside impeachment impeachment. It's an NBC News. podcast host we break down what matters what's next and what it means for our country search. Now wherever you're listening to this podcast to subscribe for free. Thanks for listening. Depress Chuck Todd Cast. It's an insider's take on politics. The two thousand twenty election and more candid conversations with some of my favorite reporters about things. We usually discuss off camera. Listen for free. Wherever you get your podcast I should note that you have worked with you and your your colleague Emanuel says have worked with the campaign of Elizabeth Warren on her wealth tax proposal so just to disclose that? What would the wealth tax? How would it work and we also worked with the campaign of Bernie Sanders on your wealth tax proposal and so let let me describe very simply how it would work? Let's take the Warren Wealth Tax it starts is at fifty million dollars way. Means that if you own fifty million. LS You pay zero if you earn modern fifty million. You'll you have to pay some tax. You're going to have to pay two cents on any dollar above fifty million as Warren says which means the module tax rates on wealth of millions going to be two percent and if you have more than a billion dollars the marginal tax rate is going to be six six percents. The idea is to include all assets net of debts in the base value. Everything that very the rich people own at the market value and then you have tax two percent six percent the Bernie Sanders Wealth Tax is pretty similar. The main difference for instance is that it starts bitten lower in the wealth distribution at thirty two million dollars it is similar in the sense that also has higher rates for billionaires else as high as eight percent of ten billion dollars in the sender's version. What's important to understand with these wealth? Texas is is that they would be a very small fraction of the population so you less than zero point one percent of the population which means that it could be who would it be easy for the IRS to have ready high rates especially if the irs funding which is something that both warnin centers other candidates are proposing making sure that the taxis already beware enforced in that volume is reduced at at a low level. If avoidance was was fifteen percents. Let's assume there is some tax avoidance. What we estimate is that a wealth tax like the one wealth tax would generate about three point five if trillion dollars in revenue over the next ten years? That's about one point five percent of GDP every year. It's a substantial amount damage revenue for such a small group of depopulation. That's something that again and you know. Childcare are free college for between universities and so yes you're talking to three hundred fifty billion dollars. A year in the federal budget is is a significant amount of money that can fund very significant programs. It's this is not it. It's it's a lot of money assuming that the tax can be reasonably well enforced and there is a debate. About how much avoidance there would be and and some people have that view that because the wealthy can hire the best lawyers accountants. It's impossible to tags them and I think that view is misguided because look tax avoidance tax evasion. These are lose of nature. These are essentially policy choices. If you have a law that's well written with. No exemptions is no deductions or assets above fifty millions of taxable at the market value. And he's there is strong enforcement. If there is the political will to make the tax work I think the lesson from the new deal era tech system from post World War Two. US Tax System is that Progressive Gift Exhibition can work in such a context again. It's possible to reduce avoidance too low. So that the counterexample people gave is there. A variety variety of OCD countries that have tried wealth taxes and then essentially repealed them because they were not workable. There's a few that still have them if I'm not mistaken but the general general idea is look where you're talking about people with this much money and with this much online. I mean when you think about the difference between having one billion dollars in two billion dollars is GonNa be six percent that second billion dollars like. That's a Lotta money. What does that sixty million dollars? Yes six sixty million bucks a lot of bucks okay. So if you're looking at okay. I'm worth two billion if I could get it down to one billion I can save sixty million dollars. That is a lot of incentive to go spend spend forty five million dollars on people that can come up with something seen scheme to hide the income. Yeah but how are you going to do that. Look if a few but there's a lot of the they seem to be doing a lot of it right like there's all these like there's all these crazy Caribbean countries I've ever heard of. The people like have have their corporate vessels in the incorporate there and there's nested shell companies that in the Seychelles. I I mean I'm this is not my expertise but they do pull it off. They do they do it. If policymakers let them do it. That's very important to understand if there is a pretty cool wheel to fight tax evasion. Tax Avoidance that's possible. Let me give a number of examples. You were talking about is Caribbean islands and Cayman Islands. and Ba Muda. We'll people create shell companies and hide assets and this is a reality. This is reality that was tolerated for for very long time and then there was a change that happened. In Two thousand ten Congress enacted the Foreign Account Tax Compliance Act which forces foreign financial institutions from Oto Ville the world to send information to the IRS. About the bank accounts counts of the US clients and other threats of economic sanctions and so before two thousand ten there was absolutely no exchange of bank infomation so it was really easy to hide assets in the Cayman Islands since the free account tax compliance. Act It's much harder and not saying that tax evasion has disappeared. I'm not I'd say that the very same bankers who for very long time were helping the clients hide assets. Sometimes you know smuggling diamonds into toothpaste tubes hooves. I'm not saying that these very same people are now old. Honestly cooperating with the IRS. Some of them are violating the law. But however what you see is is that policymakers can decide to enforce Xi's better and new forms of International Corporation can materialize in order to be short of time. I remember because I started studying economics. I study May PhD to nine which was just before this law and at the time when you know looked looked up just to me that country US been countries should have a law like that. No forcing freeing banks to send information to enforce the income tax and when I was saying that at the time people looked at me and they said look. You know you're crazy. This would never happen. How can you force Switzerland or tax havens to send data will never happen and and now it's the reality Okay and so there is a lesson in there which is that yes? Those are pretty cool wheel to enforce. Xi's lots can be so. Do you chalk up. The revocation of these attempts wealth taxes and some other OECD countries particularly in Europe to just like failure political Wilbon. Yes yes it is. It is essentially a big political failure in Europe and a big intellectual failure so many countries use to have some of them still have wealth taxes. There is nothing inherent in wealth taxes. Which means that it should fail? You know it's a choice. And European policymakers curse have been very bad on a number of dimensions first of all. They're tolerated tax evasion. Many Wealth Europeans did have Swiss bank accounts Johnson declared they had to wait for the US to pass a frantic contacts complaints. Act to do something you know. They never were aggressively. Came to trying to enforce the law and fight tax evasion so they tolerate you tax evasion. Second problem perhaps even bigger is that. They embraced tax competition. So let me take the example of of France France used to have a wealth tax. And if you were a very wealthy person in France and you wanted to avoid the wealth tax you could simply a plea move to Belgium. Let's say you move to Brussels. It's a ninety minutes train. Ride from Peres. Very close. Very convenient. Great high-speed train. In as you know and from the day you moved to Belgium. That's it you don't have to pay to French and fortunately the US is is different in the sense that if you are US citizen and you move abroad the taxes follow you. US citizens are taxed. It's based on citizenship. Not on where they live which means that the US wealth tax would be much less vulnerable to tax competition Shen than the European wealthed Xi's were because to avoid A. US Wealth Tax people would have to renounce citizenship the the only way that you can avoid thorough taxation and citizenship. Renunciation is a pretty extreme move. Yes in both the Warren end end of Sanders proposals that would be an exit tax on the stock of wealth at the time of citizenship pronounciation for instance into weren't proposal it's tax of forty percent will a hundred billion dollars and you renounce citizenship you have to be forty billion upfront and and sometimes cheaper say oh you know that's horrible you know it's bad policy but no my answer to that is look there is already an exit tax in the US Wesson citizenship. PRONOUNCIATION doesn't exit tax on unrealized capital gains. Warren would do is just make it under stuck of wealth offbeat self which would reduce incentives to renounce citizenship resents quite dramatically. Yeah I mean the only example I know of is Eric Prints The founder of Blackwater who quite famously renounced his American citizenship. I think he said for the lower taxes which is remarkably patriotic thing to do The the the other thing that you hear and I don't I mean I'm GonNa make this argument I think to me the advocacy argument has some teeth to it. Just because it does feel like you know you can't essentially policy your way out of the political will problem right there. Is this kind of political economy problem which is deep. which is these are very powerful people they they a lot of incentive to hoard their wealth and not let tax it and they will do a lot of things to gut whatever policy happened? But I hear what you're saying that if it's well designed there's political you can do it. The other argument which is a more philosophical one and again. I don't think this is that persuasive. And it's largely made by people who are themselves billionaires just basically it's better for Bill Gates to spend that marginal dollar than it is for the. US government like Bill Gates knows what he's doing. He's ending malaria in sub Saharan Africa. Kaz and he's doing all sorts of great stuff and you busy body French Socialist Gabriel Zukerman. Of course you WanNa take his money away away from him this brilliant job creator and have the you know. The bureaucrats of the ginormous state wasted on whatever stupid pet projects. You want to see funded. Yes and that's the debate about charity and the fundamental problem is that charity is just not democratic. uh-huh saying let's leave Bill Gates Choose How to spend his wealth and fine except that it is this is just a return to like nineteenth century Victorian? UK where this is how things well done you know. The government was was small very little tax revenue collection. And and you know you let the wealthy give money here and there depending on whatever caused they want to to advance and I think we've made collectively as nations as communities. We've made some progress. Since the nineteenth century was the development of the social fuel state and the welfare state and progress of of democracy in general and. I hope you're not going to return to that form of Od Yucky and let me just. Yeah no response what you are saying about. Oh yeah this. Is this French Socialist. That's trying to introduce wealthed exit in the US. Think this misses disappoint. Because what we're trying to do in our book is in fact to help the West reconnect with its own tradition of tax progressivity and in particular wealth taxation. This is something that's not well known but many states had for a long time wealth taxes X.'s. I'm not talking about property. Taxes on real estate and land and talking about taxes on all of wealth including financial says including equities and bonds and so on Francis Massachusetts as far back as the seventeenth century had a wealth tax which remained in force and one thousand nine hundred fifteen a number of other than states had their own wealth Texas which were extreme modern for the time More broadly V. Wes had the most progressive progressive tax system in the world the US invented too key. Progressive Fiscal Institutions One is the shopping progressive progressive income tax with almost confiscatory marginal income tax rates of crews to one hundred percent in the middle of the twentieth century. The other where is the very progressive state tax with against attacks on wealth one time but with tax rates close to eighty percent. And what I want to say is that France never had ninety percent of modern income. Tax Rates. Friends never had eighty percent of his state tax rate no continental continental European country ever had tax rates on the wealthy like that it's a US invention and to some extent a UK investment l.. Never Happen in Europe. Although I would go and argue on the other side there is an argument from the left. There's a kind of social democratic argument from the left and this is some stuff that that comes out in the work if you read historians and sociologists and the construction of social democratic states particularly the Scandinavian model and conservatives always point this out in the US the the US at least in the federal income taxes much more progressive than some of the most heavily social democratic European countries. And there's an argument that essentially you you can get a better system of equality with higher rates overall and more universal benefits rather than massive redistribution. Writes the idea is if you look at Social Security which is of course not particularly progressive. It's capped at ninety thousand or something like that right so very wealthy people pay a tiny tiny tiny infinitesimal infinitesimal fraction of their income. Social Security People. Who are the working poor? Pay Quite a bit right in payroll taxes that is a very stable system right right and the stability of a system like security which is like say the NHL in the UK or other sort of social welfare states is everyone's paying in and everyone's benefiting that produces political durability that is much much stronger than whatever dealer ability that is provided by extreme progressivity. Luke I think think these two things are important that is progressive taxation and broad bays taxes on income to fund the big league functions of the of the social in the weather state. And I'm not sure we have to choose between two things it's clean. Even countries had and no way steed has wealth tax for instance they have attacked GDP ratios than the US sixty percent in the US is very very far from and that and they did have protects the problem with the view that okay or that matters is just collecting revenue to spend on social security and other programs. Rams and progressively doesn't matter the problem with that view is inequality because what progressive taxation does easy to regulates in the concentration of income and wealth regulates inequality it's the most powerful tool to regulate inequality because it changes the incentives of everybody changes the incentives of the very wealthy to earn a ton of income. You know of course the income tax rates. He's one hundred percent above above. It didn't million dollars. Nobody will try to earn more than ten million dollars and by the way the US was close to doing that. There's a very famous speech speech by Franklin Roosevelt in Congress and forty two where he goes to Congress and he says look. I think that American should have an income after paying taxes is of more than twenty five thousand dollars the equivalent the current about two million dollars today therefore I propose one hundred percent took module income tax rate above twenty five thousand dollars on orphans of income including sources of income that tax exempt interest from local government bounce one hundred pounds. That's amazing modern context. That's getting close to this idea. The legal maximum income and people in Congress press hesitated a little bit and I thought. Oh you know hundred percent. Maybe it'd be too much. But they settled on ninety three percents. which when you think of it? It's not so far from one hundred percent and you understand. Yeah you understand with this. This speech in nobody should have more than one thousand one hundred percent percent income tax rate that a key function of progressive taxation at least in the US context has always been this regulate Agu late inequality remits the concentration of wealth and that you're not going to shift that with big value added taxes like like European countries. Do a broad base taxes is that Kim generated out of revenue. But not going to do anything for inequality. What is your gauge of where the sort of intellectual consensus is among your peers years on this right? Now that's a good question. That's a tough question because I think it's fair to say that they're not psyched. Ah Yes that my colleagues in economics are very excited about the wealth tax and look. It's a new idea in the. US context of course no wealth taxes have existed in Europe and the state level in the US but a federal wealth that especially officially attacks on the ultra wealthy. You know studying at fifty million. That's something that's not existed anywhere. I actually in the world. So it's it's a new idea and like all new ideas has there is resistance. There is pushback. That's natural during normal at the same time I think a lot of these. His argument is missing the point which is no many people just pointing to Europe and seeing lucchino wealth taxis have failed in Europe. How could they work in the US and they miss the context of the tax competition? The tax evasion context this forget that the wealth taxes that were implemented in Europe will well-staffed much lowering the wealth distribution at around one million dollars which created all sorts of problems. Like you know people who had a big house business wealth a bit more than a million dollars and said look you know I have a bit more than a million but don't have equity. I compete for the Wealth Tax and so this generated lobbying which in terms you know gave rise to exemptions and deductions for the wealthy tax. That's how the base of these European wealth taxes started to be undermined eroded wealthed exit all being discussed today for very different. Because it's much higher and everybody understands that if you own the hundred million dollars in wealth you can pay Emilian dollars in taxes which would be the tax bill under the one proposal proposal. Two percent above fifty million. There's no liquidity problem. Show one hundred million dollars and so that's going to make much harder for extremely wealthy people to lobby for road because Sam Shins. So that's the key difference. I WANNA finish on what to me. Is You mentioned this before. Four and Elizabeth Warren Talks about on the campaign trail but to me is actually a really key part of all this which is millions and millions of Americans pay a wealth tax every year. Most middle middle-class people have most of their wealth in their home the wealth in their home assessed every year by the assessor. You you get a statement in the mail that says it's a set and then you pay what's called property taxes and the property taxes is American is baseball and Apple Pie and everyone understands our property taxes are and we have a totally To my mind insane system in which property taxes largely pay for school local schools also this produces all kinds of inequities across jurisdictions it produces white flight. It produces these sort of suburban kind of privilege. Wording in which wealthy communities can can fund schools that are top performing and get a lot of revenue and investment but that aside a wealth tax on middle class people exists in America. Right I mean. Tens of millions of people pay wealth taxes every year. Yes and it's an absurd a very bad wealth tax. Yes yes of reasons. You mentioned some of these reasons but other reasons one is that it's only restates it's only a unplanned. It exempts financial assets completely and rich people mostly own financial assets assets equities and bonds mutual fund shares and so property. Texas is a very regressive When you compute property taxes devalued evacuee wealth? You know that's going to be quite big for the middle class base going to be essentially zero right for beginners of of the verge to you come to the debts which means that you know someone who has a house with three hundred thousand dollars and a mortgage of three hundred thousand dollars. Pays the same name as someone who has Haussa through two thousand dollars and the mortgage despite the fact that omit wealth is very. That's a great point and it's very unfair fair and third. It's a flat rate. Doesn't depend on your wealth right so he's not progressive. And so what I think a modern tech system would look like is luke get to raid of property Texas replace them by a progressive tax annette wealth financial financial plus nonfinancial assets at market value. That would be much more modern and much fairer Texas than than the form of wealth taxation that we have have today which is extremely archaic. I think you could. You could really make political winner out of that if you just led with like get rid of property taxes and then just got real quiet about the Yada audio the other stuff. You're going to replace it with. I think the I think a bumper sticker that had that in sixty point fund abolish property taxes would be pretty pretty popular. It's it's it's the it's the replacement part where I think you might run into some trouble. Although from what I hear from you like point about the mortgage is a really important one because most people have mortgages on homes. Yeah absolutely and you know. There's no reason why we shouldn't take those into account when when competing tax bills so the US has many countries a bunch of taxis very old the property taxes when example the sales Texas is another example of owed arcade very regressive taxes. The time has come to replace those by a modern income taxes and progressive Texas with the technology that exists today it's too easy for the IRS. To value ooh forms of wealth in has the inflammation could collect more information and be very difficult so we need to adapt the techsystems stems to the reality of the twentieth century businesses. Innovate but governments can innovate as well and create these progressive wealth taxes today. Gabriel Brazilian is a professor of economics at UC Berkeley. He's the author Along with Emmanuel says of the triumph of injustice as you have heard he's consulted with the campaigns of both both Bernie Sanders and Elizabeth Warren on designing their Wealth Tax Gabriel. This was great. Thank you so much. Thank you so much once again. My great thanks to do professor Gabriel's Zutphen You can check out his books. The triumph of injustice. How the rich dodge taxes and how to make them pay a hidden wealth nations also? If you like this conversation we did another conversation about rich folks and taxes with propublica reporter. Jesse Eisenhower who has done incredible reporting about how basically even when you put aside the actual changes in tax laws ause that have made it so that rich people pay less taxes the IRS itself as an enforcement agency has been gutted very intentionally to make it harder and harder for them to just actually collect the taxes that are owed by rich people. We've seen huge increases in both tax avoidance and just outright tax evasion by rich people in this country and understaffed. IRS battling to try to recoup recoup the money that is actually statutorily odes. That's a great conversation. You can look that up in the with pot archives also very exciting time of year. It's the holidays which means one one thing. There's probably one thing on your mind when you think about the holidays and it's that there's going to be a with pod mailbag second year in a row. We will take your questions. The one and only tiffany champion will be reading them And I'll be answering them. We'll be bantering. It'll be lovely. It'll put everyone. The holiday spirit will sip on some eggnog cookie dough I we do. I'm just kidding. We won't because we'll be like in the middle of a work day where we have a TV TV show. That would be nice. I'd love to live in a world where I could just like simple little cookie dough. All I did the annual mailbox. That's not the word I live in. Maybe someday so in order to make that mailbag extra super awesome for your holes. We need you to send us your questions. Your questions better. Questions and comments by exit polls will take comments too but questions and comments for the mail bag send them to with pod at dot com put mailbag in the subject line or tweet us with the Hash tag with pod and you can send your questions either of those ways. We'll be answering some of them in the era and mailbag episode. 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