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Understanding the wealth tax with Gabriel Zucman: podcast and transcript

Chris Hayes talks with economist Gabriel Zucman about whether a wealth tax could help reduce the vast income and wealth inequality in the country.

Could a wealth tax help reduce the vast income and wealth inequality in the country? It’s an idea that not only has the backing of two Democratic primary frontrunners — Sen. Bernie Sanders and Sen. Elizabeth Warren — but also enjoys wide public support. So what would it look like to have a wealth tax, who would end up paying, and why is Wall Street freaking out about it?

And how did we get to this level of wealth inequality to begin with? There’s no one better to answer all these questions than Gabriel Zucman, an expert economist who worked with both campaigns to develop their wealth tax proposals based on his years of research.

CHRIS HAYES: What is your gauge of where the sort of intellectual consensus is, among your peers on this right now?

GABRIEL ZUCMAN: That's a good question. That's a tough question. Because I think it's fair to say that-

CHRIS HAYES: They're not psyched.


CHRIS HAYES: Hello and welcome to “Why Is This Happening?” with me, your host, Chris Hayes. Well, the 2020 Democratic Primary is in full swing. It's heating up. I'm trying to think of other news clichés I could use. We're in the final stretch. We're not in the final stretch. But that's another news cliché about campaigns. One thing, it's just crazy the way that news clichés 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 of disagreement or debate within the Democratic Party and the Democratic coalition and among the primary candidates is on taxation, and specifically about a 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 inequality in American society.

And that inequality has been written about and talked about a ton. I think it's written and talked about by basically every candidate in the Democratic Party, at this point. It's established very well in the data. There's not a whole lot of disagreement about whether there has been a rise in inequality. There is an incredible concentration of wealth. And for a long time, a lot of the discussion about how to deal with that had to do with income taxes. And income taxes have gotten more aggressive, at the federal level, over time.

There was a cut in the top marginal rate in the Trump tax cuts that were passed back in 2017, that have now taken effect, that has exacerbated that inequality. And then there's a whole bunch of other features of the tax system that allow people at the top to game 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, and income is, what we call in economics, a flow. Right? Like it's the amount that flows into your bank account, into your household, in a year. What people have not talked about really seriously or proposed, until this year, is taxing wealth. Which is a stock, right? You know, if you think of Scrooge McDuck in the vault, diving into the doubloons, right? 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 in to 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. People who have multiples of millions of dollars in wealth. We focus a little more today on Warren's proposal, just because it was the first proposal, and because our guest actually worked on the proposal with her. But they're sort of roughly similar there. They're a little different in the details, but in the same family, the Sanders and Warren wealth tax. And the idea here, the 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 $50 million, and then above $100 million dollars, and going up, a certain percentage of your wealth is just handed over to the government every year.

I think it's fair to say this has freaked Wall Street out quite a bit. It's freaked out billionaires. There was a billionaire literally crying on CNBC in an interview about this. There has been some kind of speculation that part of the reason that billionaire Michael Bloomberg got into the race in the Democratic Party, which he's recently entered, and has been spending like $50 million in his first few weeks on ads. More than everyone else combined, except for the other billionaire, Tom Steyer. That part of the reason that Michael Bloomberg got in, specifically, was this proposal.

Because this proposal would cost Michael Bloomberg hundreds of millions, and then billions of dollars a year. 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 to the U.S.Treasury every year. Some people even joked, and I think Elizabeth Warren has made this case, that it's much cheaper for him to spend hundreds of millions of dollars on ads now, trying to sort of defeat Warren and 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 it that, on its face, seem attractive if you're concerned about inequality. But there's a lot of criticisms of it as well. And so, there's no one better to talk to than one of the economists who pose the tax, who's written about the tax, and who actually worked with the Warren campaign in developing (it). A guy by the name of Gabriel Zucman. 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 the foremost expert on the wealth tax. I mean, this is what he does.

He studies inequality. He studies the rise of inequality across different nations, over time, and not just in the U.S., but in other countries in the OECD and outside the OECD. And he studies the effect that taxation has on inequality. And then how to design taxation policies to reduce inequality. So this is literally what he has devoted his life's work to. And he is one of the sort of intellectual architects of a revolution that's happening more broadly in economics, that really is taking inequality much more seriously than it used to be taken. So I just thought, "Well, I'm fascinated by this. I think this is one of the most interesting high-stakes debate that's happening in the Democratic primary." It's also, I should note, one of the policies that polls the best out of everything. The wealth tax polls incredibly well among, not just Democrats, but independents and Republicans.

It gets majority support among Republicans. I mean there's lots of lefty ideas that people say, "Oh, that's terrible, and voters would never go for it, 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 an 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 see a Democratic politician, and a Democratic Congress and Senate enacting with public support. I mean that can change. And so given all of that, I thought, "There's no one better to talk to about what a wealth tax is, why we need one, or don't we need one, and what it will look like, then Professor Gabriel Zucman." How did you get interested in inequality as a thing you wanted to study?

GABRIEL ZUCMAN: Yeah, look, in the post-World War II decade, inequality was at a low level, and it was stagnating. So it was just not very exciting to study income and wealth inequality at that time. But things have changed completely since the 1980s. Starting at the beginning of 1980s, we've seen this huge rise in income and wealth concentration. You look, for instance, at wealth and the share of wealth owned by the top 0.1 percent wealthiest Americans. In 1980, it was 7 percent. Today, it's about 20 percent.


GABRIEL ZUCMAN: 20 percent, that's as much as what the button 90 percent owns, in total. So now, we're in a situation where 0.1 percent of the population owns as much wealth as 90 percent of the population. So obviously, now studying inequality is extremely important. And more broadly, the notion that we can study the economy, as if populated by just one representative agent. Which is what economists used to do in the 1960s, 1970s, (and) 1980s. That notion, essentially, doesn't make sense anymore. The fiction of the representative agent is dead and distributional questions are making a huge comeback in economics. Which is just a return to the way that economics used to be done before World War II. If you look at economics in the 19th century, early 20th century, you look at the work of classical economists like (David) 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.

CHRIS HAYES: The stat you just gave is wild. So the one tenth of 1 percent top wealth holders, they had 7 percent of the nation's total wealth in 1980, they have 20 percent now. Which is equal to the bottom 90 percent, right?


CHRIS HAYES: What is the story for what has happened post-1980 here in the U.S., and around the world, where we've seen similar trends?

GABRIEL ZUCMAN: So the story is a story of a huge social experiment, in one sense; that is, the U.S. has changed policies in a number of areas, in the same direction. So the tax system used to be very progressive and it has become much less progressive, to the extent that today, the tax system looks like a giant flat tax. When you take into account all taxes at all levels of government. Then you look at what has happened, for instance, in the labor market. The minimum wage used to be high. The federal minimum wage has declined a lot. You look at what has happened in terms of access to higher education. College used to be almost free. Now, it's usually costly. Finance has been deregulated and so on and so on. So along all those margins, in all these policy areas, there's been a move towards, what you could call, market fundamentalism. And the U.S. has been extreme in going in that direction. Other countries have adopted some of these policy changes, but not as much, and not in as systematic a way as the U.S. And that's the reason why wealth concentration and income inequality have increased more in the U.S. than in other countries.

CHRIS HAYES: So the sympathetic story about inequality is about, essentially, increasing gains, particularly to superstar performers. And the example that's always given of this, so let's talk about LeBron James, right? In the pre-globalized economy, LeBron James was limited in the amount of money he could make because, say, he could only sell jerseys in the United States, right? But, now you have a global market and he can 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 outsize; 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 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?

GABRIEL ZUCMAN: It's a story that, on the face of it, it makes sense. It's a plausible story. But the problem is that it's not consistent with the facts. The sense that if that story was true, you should have seen any inequality arise at pretty much the same pace, all over the world, at least in all developed countries. Because, you know, globalization, that has been a global phenomenon. It's not only in the U.S. that you can earn more by reaching out to a huge market. And so we should have seen the same process happening in Japan, or in France, or in Germany. And the fact is that this is not what has happened. So, of course, inequality has increased in Japan, in France, in Germany, but much less than the U.S. So, let me just mention one statistic, to illustrate this difference.

GABRIEL ZUCMAN: If you look now at income, so not wealth, but income. In 1980, the top 1 percent highest income earners in both the U.S. and Western Europe earned about 10 percent of total income. Today, the top 1 percent earns 20 percent of the total income in the U.S.


GABRIEL ZUCMAN: And in Europe, it's 12 percent.


GABRIEL ZUCMAN: Okay. So there's been some rising inequality in Europe, but nothing as dramatic as in the U.S.

CHRIS HAYES: But this gets to a sort of deeper conceptual question; which is, when you talked about fundamentalism, there's a question about when we talk about billionaires in the U.S., the most extremely wealthy in that 0.1 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 there's all kinds of, what economists would call, rent seeking, co-optation of policy, a monopoly that is allowing them to sort of extract that kind of wealth?

GABRIEL ZUCMAN: It's a mixture of both. Look, many billionaires in the U.S. come from the financial sector. In finance, there's a lot of rent seeking for sure. At least, the income that you can earn, the wealth that you can accumulate in the financial sector depends enormously on financial regulation and financial deregulation. So it's hard, empirically, to say "No, look, this is rent seeking. This is kind of a perfect functioning of perfect markets." But in many ways it doesn't matter so much. You know, at the end of the day, what determines how much inequality there is, is government policies.


GABRIEL ZUCMAN: In, especially, the tax system. And for most of the 20th century, U.S. policy makers tried hard to limit the concentration of income and wealth, with a very progressive tax system, especially high tax rates and capital income, and interest, and dividends, and capital gains, and corporate profits, and estates, everything. Capital used to be highly taxed in the U.S., precisely to prevent the accumulation of huge fortunes, which were seen as detrimental to the rest of society. And that's really important, because people have forgotten about that, especially in the U.S. This notion that extreme wealth and an extreme concentration of wealth is corrosive for the social contract, is deeply rooted in American society. You find that idea as far back as the Founding Fathers. You read James Madison, for instance, the father of the U.S. Constitution, and he says exactly this, "An extreme concentration of wealth in a Republic is very dangerous because it is going to mean an extreme concentration of power." In particular, the power to influence policies, to influence the democratic process. And that's why the U.S., for such a long time, was trying hard to limit wealth concentration.

CHRIS HAYES: One of the things I like about your work, and I've been reading and paying close attention to it, is there's this distinction that often gets made in the inequality conversation about pre-tax income and after-tax and redistribution, right? So the idea is like, okay, well there's some set of market institutions that are producing a certain amount of inequality. Then the government comes and does some taxing and redistributing, and then at the end of that, what does it look like? But you've been really focused on just being like, "Look, the tax system is what we have to deal with this problem. Let's not overthink it. Look at how much the tax system has changed to stop addressing inequality and, in fact, to exacerbate it." What is the story of taxes for the richest from 1980 to now, during this period that we've seen this explosion of inequality?

GABRIEL ZUCMAN: The story is a story of a dramatic decline in tax progressivity. So to understand that story, you need to remember that the U.S. used to have probably the most progressive tax system in the world, in the post-World War II decades. With top marginal income tax rates of as much as 90 percent on the highest earners, top estate tax rates close to 80 percent, corporate income tax rate of 50 percent, and so on and so on.

CHRIS HAYES: That's crazy.

GABRIEL ZUCMAN: So very progressive. And sometimes people look at that history and they say, "Oh look, the U.S. pretended, only pretended to tax the wealthy. But in actual facts, nobody paid these very high tax rates." And what we show now, is that actually, that's not true. When you take into account all taxes at all levels of government, and you come to the effective tax rates paid by each income group, what you see is that in the post-World War II decades, the top 0.1 percent paid around 55-60 percent of their income in taxes. So a very high, effective income tax rates. And today, it's very different. Today, if you take a comprehensive view of how much each income group pays in taxes, what you find is that everybody, essentially, pays around 28 percent of their income in taxes. The working class, the middle class, the upper middle class, except for billionaires, the top 400 wealthiest Americans, who pay just 23 percent of their income in taxes.

GABRIEL ZUCMAN: So to summarize, now, the U.S. tax system looks like a giant flat tax, with the same effective tax rate for each income group, except at the very top where it becomes regressive.

CHRIS HAYES: Okay, but wait, we want to stop you there. Because what you've just said, I think people, when they think about taxes, tend to think about federal income tax. When you say that, "If you look at everyone across all taxes, everyone's basically paying 28 percent flat tax," you're counting all the other taxes that are not just the federal income tax?

GABRIEL ZUCMAN: Absolutely, yes. That's important to understand. We are looking at all federal, plus state, plus local taxes. And you're absolutely right that when you only look at federal taxes like the Congressional Budget Office does, for instance, yes, these federal taxes are progressive. But state and local taxes are very regressive.

CHRIS HAYES: Extremely. If you've ever covered state government, it's amazing how much blood they try to squeeze from the stones of those working class folks in a state, when they have to close budget gaps.

GABRIEL ZUCMAN: And that's because they rely so much on sales taxes and other indirect taxes, which are usually regressive. Because, of course, if you have a low income, you consume most of your income. But if you are extremely wealthy, on the other hand, you can save a lot, and so you don't pay sales taxes. So, that's the innovation in our work; is trying to take this comprehensive prospective going beyond federal taxes, and incorporating state and local taxes, and also trying to take a comprehensive perspective on an income, because sometimes what happens is people say, "Look, the rich have high tax rates as a fraction 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 their tax return.


GABRIEL ZUCMAN: So let me take one example for instance, which I think is pretty striking.


GABRIEL ZUCMAN: You take the example of Warren Buffett. Warren Buffett, his wealth is about $80 billion according to Forbes magazine. He's one of the main shareholders of Berkshire Hathaway. His taxable income, what shows up on his tax return, we know that because he discloses this himself, is around $20 million. The reason for that is because he instructs Berkshire Hathaway not to pay dividends, and so the only income that he earns from the viewpoint of the tax code is when he sells a few shares of Berkshire Hathaway, and realizes a bit of capital gains. And so he has $20 million in taxable income, but his true economic income, his share of Berkshire Hathaway's profits, it's something like $4 billion. So you see the problem. His wealth is $80 billion, his true income is $4 billion, his taxable income is $20 million, and his tax rate is 25 percent of $20 million, is something like $5 million dollars, but in fact, $5 million, it's essentially 0 percent of his true income, or 0 percent of his wealth.

CHRIS HAYES: So that's a great example. And there's two things that highlights that I think is really interesting. One is, most people who are listening, this overwhelming majority, most of their income comes from their wages or their salaries. They work, they are paid for that work, and that income is essentially by design and properly impossible to hide or mess with, vis-a-vis the tax system. You just get the pay stub, and this includes people like myself who are well-compensated, but it's still labor. So there's no wiggle room on that. That's what most people, most of their income is. When you're dealing with a Warren Buffet, that's nothing. The wage is not what's making Warren the money. It's his wealth that’s making money for him, and there's a lot more of an ability for gamesmanship 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 active pocket that you file before the IRS.

GABRIEL ZUCMAN: Precisely, and that gets at the heart of the debate. In particular, the debate about wealth taxation. So today when you're very rich, if you're a billionaire, it's extremely simple to own dozens, tens of billions of dollars, while having very little taxable income, which has one big implication, which is that even if you make the 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 difference to the effective tax rate of billionaires. If you really want to tax billionaires, someone like Warren Buffett, you need, essentially, a wealth tax. The wealth, that is the proper way to tax extremely wealthy people who can own a ton of wealth while having little income.

CHRIS HAYES: The other thing that I think this points to is, there's one basic principle of taxation people are probably familiar here with is that ... let's say you do own a stock and that stock goes up in value. If you're just holding onto the stock, you're not paying income taxes on it going up in value unless you sell the stock or you get a dividend from it, in which case you realize those gains and they come into you as income. What you're saying in the case of Warren Buffett is, you just hold onto it, let it increase in its value. Your wealth is going up. You don't have to pay taxes.

CHRIS HAYES: 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 line about death and taxes, and that is why the estate tax is so important. That's why the rich and the Koch brothers and the Republicans have gone after the estate tax, because the one inescapable point of tax actualization is that when Warren Buffett dies or any billionaire dies, you can't get away with not dealing with your unrealized gains anymore because the estate is there.

GABRIEL ZUCMAN: Yes, that's why they care so much, and that's why they've been so aggressive when it comes to undermining the estate. And that's a dramatic change that has happened since the 1970s. In the 1970s, the estate tax collected, in terms of tax revenue, the equivalent of 0.2 percent of total wealth. If you take the total wealth of Americans, what was paid in estate tax was 0.2 percent of that each year. Today it's 0.03 percent of total wealth, so it's been divided by a factor of six. Why? Essentially because of a huge increase in tax avoidance. The creation of trusts, the use of valuation discounts. You have a huge industry that does 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 tax for many of them that they would ever pay. And so that illustrates a problem, which is only rely on the estate tax, because if for some reason a billionaire finds a way to avoid the estate tax, then okay, that person is never going to pay any substantial amount of taxes. And that's another reason why instead of relying so much on estate taxation, you'd probably like to have an annual wealth tax. The beauty of the annual wealth tax is, even if one year someone finds a way to avoid it because it's every year, the IRS can find ways to enforce it better and you make billionaires pay their fair share in taxes.

CHRIS HAYES: Let's get into some basic questions about how the wealth tax would actually work right after this break.

CHRIS HAYES: I should note that you have worked with, you and your colleague Emmanuel Saez, have worked with the campaign of Elizabeth Warren on her wealth tax proposal. Just to disclose that, what would the wealth tax, how would it work?

GABRIEL ZUCMAN: We also worked with the campaign of Bernie Sanders on their wealth tax proposal. Let me describe very simply how it would work. Let's take the Warren wealth tax. It starts at $50 million. What it means is that if you own 50 million or less, you pay zero. If you earn more than 50 million, you'll have to pay some tax. You're going to have to pay two cents on any dollar above 50 million, as Warren says, which means the marginal tax rate on wealth, about 50 million, is going to be 2 percent, and if you have more than a billion dollars, the marginal tax rate is going to be 6 percent. The idea is to include all assets, net of debts in the base, value everything that very rich people own at the market value, and then you have a tax, 2 percent, 6 percent. The Bernie Sanders wealth tax is pretty similar. The main difference is that it starts a bit lower in the wealth distribution at $32 million. It is similar in the sense that it also has higher rates for billionaires, as high as 8 percent above $10 billion in the Sanders version.

Image: Elizabeth Warren
Sen. Elizabeth Warren speaks during the sixth Democratic primary debate of the 2020 presidential campaign season in Los Angeles, Calif. on Dec. 19, 2019.Frederic J. Brown / AFP - Getty Images

What's important to understand with these wealth taxes is that they would be only a very small fraction of the population, so less than 0.1 percent of the population, which means that it would be relatively easy for the IRS to have already be high audit rates, especially if this came with more IRS funding, which is something that both Warren and Sanders and other candidates are proposing, making sure that the taxes already are well enforced and that avoidance is reduced at a low level.

If avoidance was 15 percent ... let's assume there is some tax avoidance. What we estimate is that a wealth tax, like the Warren wealth tax, would generate about $3.5 trillion in revenue over the next 10 years. That's about 1.5 percent of GDP every year. It's a substantial amount-

CHRIS HAYES: Yes, that's a lot of money.

GABRIEL ZUCMAN: Of tax revenue for such a small group of the population. That's something that can fund childcare or free college for public universities, and so on and so on.

CHRIS HAYES: You're talking $350 billion a year in the federal budget is a significant amount of money that can fund very significant programs. This is not at the margins.

GABRIEL ZUCMAN: 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 some people have that view that because the wealthy can hire the best lawyers and accountants, it's impossible to tax them, and I think that view is misguided because look, tax avoidance, tax evasion, these are not laws of nature. These are essentially policy choices. If you have a law that's well-written with no exemptions, no deductions, all assets over 50 million are taxable at the market value. And if there is strong enforcement, if there is the political will to make the tax work, I think the lesson from the New Deal era tax system and from the post-World War II U.S. tax system is that progressive taxation can work in such a context. It's possible to reduce avoidance to low levels.

CHRIS HAYES: The counter example that people give is that there are a variety of OACD 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 idea is, look, when you're talking about people with this much money and with this much on the line, when you think about the differences between having $1 billion and $2 billion is going to be 6 percent of that second billion dollars, like, that's a lot of money. What is that, $60 million?


CHRIS HAYES: 60 million bucks is a lot of bucks. So if you're looking at, "Okay, I'm worth 2 billion, if I could get it down to 1 billion, I can save $60 million." That is a lot of incentive to go spend $45 million on people that can come up with some insane scheme to hide the income.

GABRIEL ZUCMAN: Yeah, but how are you going to do that? Look, if you are --

CHRIS HAYES: I don't know. They seem to be doing a lot of it, right. There's all these crazy Caribbean countries I've never heard of that people have their corporate vessels in, and they incorporate there, and there's nested shell companies that ... in the Seychelles. This is not my area of expertise, but they do pull it off.

GABRIEL ZUCMAN: They do it if policymakers let them do it. That's very important to understand. If there is a political wheel to fight tax evasion, tax avoidance, that's possible. Let me give a number of examples. You are talking about these Caribbean Islands and Cayman Islands and Bermuda where people create shell companies and hide assets, and this is a reality. This is a reality that was tolerated for a very long time, and then there was a change that happened.

In 2010, Congress enacted the Foreign Account Tax Compliance Act, which forces foreign financial institutions from all over the world to send information to the IRS about the bank accounts of their U.S. clients and other threats of economic sanctions. And so before 2010, there was absolutely no exchange of bank information, so it was really easy to hide assets in the Cayman Islands. Since the Foreign Account Tax Compliance Act, it's much harder. I'm not saying that tax evasion has disappeared. I'm not saying that the very same bankers who, for a very long time, were helping their clients hide assets, sometimes smuggling diamonds into toothpaste tubes. I'm not saying that these very same people are now all honestly cooperating with the IRS. Some of them are still violating the law, but however, what you see is that policymakers can decide to enforce taxes better, and new forms of international cooperation can materialize in a relatively short period of time.

I remember because I started studying economics. I started my PhD in 2009, which was just before this law. And at the time, it looked obvious to me, that the U.S., European countries, should have a law like that forcing foreign banks to send information to enforce the income tax. When I was saying that at the time, people looked at me and they said, "Look, you're crazy. This would never happen. How can you force Switzerland or tax havens to send data? It will never happen." And now it's a reality. So there is a lesson in there, which is that, yes, if there is a political will to enforce taxes, a lot can be done.

CHRIS HAYES: So, do you chalk up the revocation of these attempts or wealth taxes in some other OACD countries, particularly in Europe, to just a failure of political will, then?

GABRIEL ZUCMAN: Yes. It is essentially a big political failure in Europe, and a big intellectual failure. So many European countries used to have ... some of them still have wealth taxes. There is nothing inherent in wealth taxes, which means that they should fail. It's a choice, and European policymakers have been very bad on a number of dimensions.

First of all, they've tolerated tax evasion. Many wealthy Europeans did have Swiss bank accounts undeclared. They had to wait for the U.S. to pass the Foreign Account Tax Compliance Act to do something. They never were aggressive when it came to trying to enforce the law and fight tax evasion. So they tolerated tax evasion.

Second problem, perhaps even bigger, is that they embraced tax competition. So let me take the example 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 move to Belgium. Let's say you move to Brussels, it's a 90 minute train ride from Paris. It's very close, very convenient, great high speed train, as you know. And from the day you moved to Belgium, that's it. You don't have to pay the French wealth tax anymore, and fortunately the U.S. is different in the sense that if you are a U.S. citizen and you move abroad, the taxes follow you. U.S. citizens are taxed based on citizenship, not on where they live, which means that the U.S. wealth tax would be much less vulnerable to tax competition than the European wealth taxes were, because to avoid a U.S. wealth tax, people would have to renounce citizenship.

GABRIEL ZUCMAN: That's the only way that you can avoid federal taxation, and citizenship renunciation is a pretty extreme move. In both the Warren and the Sanders proposals, there would be an exit tax on the stock of wealth at the time of citizenship renunciation. For instance, in the Warren proposal, it's a tax of 40 percent. If you are worth $100 billion and you renounce citizenship, you have to pay 40 billion upfront. Sometimes people say, "Oh, it's horrible. It's a bad policy." My answer to that is, "Look, there is already an exit tax in the U.S. upon citizenship renunciation. There's an exit tax on unrealized capital gains. What Warren would do is just make it on the stock of wealth itself, which would reduce the incentives to renounce citizenship for tax reasons quite dramatically."

CHRIS HAYES: Yeah. The only example I know of is Erik Prince, the founder of Blackwater, who quite famously renounced his American citizenship. I think he said for the ... lower his taxes, which is a remarkably patriotic thing to do. The other thing that you hear ... I'm going to make this argument. I think to me the kind of efficacy argument has some teeth to it just because it does feel like you can't, essentially, policy your way out of the political will problem. There is this kind of political economy problem, right, which is deep, which is that these are very powerful people, they have a lot of incentive to hoard their wealth and not let you tax it, and they will do a lot of things to gut whatever policy happened. But I hear what you're saying is that if it's well-designed, there's political will, 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.

Basically it's better for Bill Gates to spend that marginal dollar than it is for the U.S. government. Like, Bill Gates knows what he's doing. He's ending malaria in Sub-Saharan Africa and he's doing all sorts of great stuff, and you busy body, French socialist, Gabriel Zucman, of course you want to take his money away from him, this brilliant job creator, and have the bureaucrats of the ginormous state wasted on whatever stupid pet projects you want to see funded.

GABRIEL ZUCMAN: Yes. And that's the debate about charity. The fundamental problem is that charity is just not democratic and saying, "Let's leave Bill Gates to choose how to spend his wealth and ... " Fine, except that it is just a return to 19th century Victorian UK where this is how things were done. The government was small, very little tax revenue collection, and you let the wealthy give money here, and there depending on whatever cause they want to advance. And I think we've made...collectively as nations, as communities, we've made some progress since the 19th century with the development of the social state and the welfare state, and the progress of democracy in general. And I hope we are not going to return to that form of hierarchy.

And let me just respond to what you were saying about, "Oh yeah, this is this French socialist that's trying to introduce wealth taxes in the US." I think this misses the point because what we are trying to do in our book is in fact to help the U.S. reconnect with its own tradition of tax progressivity, and in particular wealth taxation. This is something that's not well known but many U.S. states had, for a long time, wealth taxes. I'm not talking about property taxes on real estate and land. I'm talking about taxes on all of wealth, including financial assets, including equities and bonds, and so on. For instance, Massachusetts, as far back as the 17th century, had a wealth tax which remained in force until 1915. A number of other northern states had their own wealth taxes which were extremely modern for the time. More broadly, the U.S. had the most progressive tax system in the world. The U.S. invented two key progressive fiscal institutions. One is the sharply progressive income tax with almost confiscatory top marginal income tax rates of close to 100 percent in the middle of the 20th century.

The other is the very progressive estate tax with ... Again, it's a tax on wealth at one time. But with tax rates close to 80 percent. And what I want to say is that France never had 90 percent of modern income tax rates. France never had 80 percent of the state tax rate. No continental European country ever had tax rates on the wealthy like that. It's a U.S. invention and to some extent a UK invention.


GABRIEL ZUCMAN: Never happened in Europe.

CHRIS HAYES: Although I would ... To 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 comes out in the work if you read historians and sociologists on the construction of social democratic states, particularly the Scandinavian model. And conservatives always point this out in the U.S., that the U.S. is, at least in the federal income tax, is much more progressive than some of the most heavily social democratic European countries. And there's an argument that essentially you can get a better system of equality with higher rates overall and more universal benefits rather than massive redistribution.

So the idea is if you look at social security which is of course not particularly progressive, it's capped at 90,000 or something like that so very wealthy people pay a tiny, tiny, tiny infinitesimal fraction of their income to social security. People who are the working poor pay quite a bit in payroll taxes. That is a very stable system. And the stability of the system like social security which is like, say, the NHS in the UK or other social welfare states, is everyone's paying in and everyone's benefiting. That produces political durability that is much, much stronger than whatever durability that is provided by extreme progressivity.

GABRIEL ZUCMAN: Look, I think these two things are important. That is progressive taxation and broad-based taxation on income to fund the big functions of the social, and the welfare state. I'm not sure we have to choose between these two things. Scandinavian countries had ... and Norway, still has a wealth tax, for instance. They have much higher tax to GDP ratios than the U.S., 50 percent, and the U.S. is very, very far from that. And they did have progressive taxes. The problem was the view that, "Okay, all that matters is just collecting revenue to spend on social security and other programs, and progressivity doesn't matter." The problem… what progressive taxation does is it regulates the concentration of income and wealth. It regulates inequality. It's the most powerful tool to regulate inequality because it changes the incentives of everybody. It changes the incentive of the very wealthy to earn a ton of income. Of course, if the top margin income tax rate is 100 percent above, let's say $10 million, nobody would try to earn more than $10 million.

And by the way, the U.S. was close to doing that. There's a very famous speech by Franklin Roosevelt in Congress in 1942 where 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," at the time. The equivalent of about $1,000,000 today. "Therefore I propose a 100 percent top marginal income tax rate above $25,000 on all forms of income,” including sources of income that were tax exempt, you know like interest from local government bonds. 100 percent top marginal income tax rate.

CHRIS HAYES: Wow. That's amazing.

GABRIEL ZUCMAN: That's getting close to this idea of the legal maximum income. And people in Congress hesitated a little bit and they thought, "Oh 100 percent maybe it's a bit too much," but they settled on 93 percent which when you think of it is not so far from 100 percent, and you understand-

CHRIS HAYES: No, it's 7 percent less.

GABRIEL ZUCMAN: Yeah. You understand with this speech, "Nobody should have more than $25,000, 100 percent marginal income tax rate," that a key function of progressive taxation, at least in the U.S. context, has always been this: regulate inequality, limit the concentration of wealth. And that you're not going to achieve that with big value added taxes like European countries do or broad-based taxes that can generate a lot of revenue but they are not going to do anything for inequality.

CHRIS HAYES: What is your gauge of where the intellectual consensus is among your peers on this right now?

GABRIEL ZUCMAN: That's a good question. That's a tough question because I think it's fair to say that-

CHRIS HAYES: They're not psyched.


CHRIS HAYES: You're an outlier, Gabriel.

GABRIEL ZUCMAN: Yes. That my colleagues in economics are not very excited about the wealth tax. And look, it's a new idea in the U.S. context. Of course no wealth taxes have existed in Europe and at the state level in the US, but a federal wealth tax, especially a tax on the ultra-wealthy starting at $50 million, that's something that's not existed anywhere actually in the world. So it's a new idea and like all new ideas there is resistance, there is pushback. That's natural and that's totally normal. At the same time, I think a lot of these arguments is missing the point which is, many people are just pointing to Europe and saying, "Look, wealth taxes have failed in Europe, how could they work in the US?" And they miss the context, the tax competition and the tax evasion context.

They forget that the wealth taxes that were implemented in Europe were starting much lower in the wealth distribution at around $1 million, which created all sorts of problems like people who had a big house, a small business, worth a bit more than $1 million dollars and they said, "Look, I have a bit more than $1 million but I don't have liquidity, I can't pay for the wealth tax." And so this generated lobbying which in turn gave rise to exemptions and deductions for the wealth tax. That's how the base of these European wealth taxes started to be undermined and eroded. Wealth taxes that are being discussed today are very different because they start much higher and everybody understands that if you own $100 million in wealth, you can pay $1 million in taxes, which would be the tax bill under the Warren proposal, 2 percent above 50 million. There is no liquidity problem if you have $100 million. And so that's going to make it much harder for extremely wealthy people to lobby for exemption, I think that's a key difference.

CHRIS HAYES: I want to finish on what to me is ... you've mentioned this before and Elizabeth Warren talks about it on the campaign trail, but to me it actually a really key part of all this, which is millions and millions of Americans pay a wealth tax every year. Most middle-class people have most of their wealth in their home. The wealth in their home is assessed every year by the assessor. You get a statement in the mail that says what it's assessed at and then you pay what's called property taxes. Property taxes are as American as baseball and Apple pie. And everyone understands what property taxes are and we have a totally, to my mind, insane system in which property taxes largely pay for school ... local schools. This produces all kinds of inequities across jurisdictions. It produces white flight, it produces the sort of suburban privilege hoarding in which wealthy communities 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.

GABRIEL ZUCMAN: Yes. And it's an absurd, a very bad wealth tax for a number of reasons. You mentioned some of these reasons but there are other reasons. One is that it's only on real estate, it's only on land, it exempts financial assets completely and rich people mostly own financial assets, equities, and bonds, and mutual fund shares. And so property taxes are very regressive when you compute property taxes divided by wealth that's going to be quite big for the middle class but it's going to be essentially zero for billionaires or for the very rich. Two, you can't deduct debts which means that someone who has a house worth $300,000 and a mortgage of $300,000 pays the same as someone who has a house of $3,000, and no mortgage, despite the fact that their net wealth is very different.

CHRIS HAYES: That's a great point.

GABRIEL ZUCMAN: It's very unfair. And third, it's a flat rate. It doesn't depend on your wealth so it's not progressive. And so what I think a modern tax system would look like is, get to read of all these property taxes, replace them by a progressive tax on net wealth, financial plus nonfinancial assets, at their market value. That would be a much more modern and much fairer tax system than the form of wealth taxation that we have today which is extremely archaic.

CHRIS HAYES: You could really make a political winner out of that if you just lead with like, "Get rid of property taxes" and then just got real quiet about the yada, yada, yada, the other stuff you're going to replace it with. I think a bumper sticker that had that in 60 point font, “abolish property taxes,” would be pretty popular. It's the replacement part where I think you might run into some trouble although from what I hear from you, that point about the mortgage is a really important one because most people have mortgages on their homes.

GABRIEL ZUCMAN: Yeah, absolutely. And there's no reason why we shouldn't take those into account when computing tax bills. So the U.S. has, like many countries, a bunch of taxes that are very old. Property tax is one example, sales taxes is another example of old archaic, very regressive taxes. The time has come to replace those by modern income taxes and progressive taxes. With the technology that exists today it's relatively easy for the IRS to value all forms of wealth and the IRS has the information, it could collect a bit more information, but it will not be very difficult. So we need to adapt the tax systems to the reality of the 21st century. Businesses innovate but governments can innovate as well and create these progressive wealth taxes today.

CHRIS HAYES: Gabriel Zucman is a professor of economics at UC Berkeley. He's the author along with Emmanuel Saez of “The Triumph of Injustice.” As you have heard, he's consulted with the campaigns of both Bernie Sanders and Elizabeth Warren on designing their wealth tax. Gabriel, this was great. Thank you so much.

GABRIEL ZUCMAN: Thank you so much.

CHRIS HAYES: Once again, my great thanks to professor Gabriel Zucman. You can check out his books, “The Triumph of Injustice: How the Rich Dodge Taxes and How To Make Them Pay,” and “The Hidden Wealth of Nations.” Also, if you liked this conversation, we did another conversation about rich folks and taxes with ProPublica reporter Jesse Eisinger who has done incredible reporting about how basically even when you put aside the actual changes in tax laws 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 a understaffed IRS battling to try to recoup the money that is actually statutorily owed, so that's a great conversation. You can look that up in the WITH pod archives. Also, very exciting time of year. It's the holidays which means 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 in the holiday spirit. We'll sip on some eggnog or Coquito while we do. I'm just kidding, we won't because we'll be like in the middle of a workday where we have a TV show to do.

That would be nice. I'd love to live in a world where I could just sip a little Coquito while I did the annual mailbag. That's not the world I live in, maybe someday. So in order to make that mailbag extra super awesome for your ear holes, we need you to send us your questions, your questions ... better questions than comments, but I suppose we'll take comments too. But questions and comments for the mailbag, send them to, put mailbag in the subject line or tweet us with the hashtag @withpod. And you can send your questions either of those ways, we'll be answering some of them in the year end mailbag episode.

“Why Is This Happening?” is presented by MSNBC and NBC News produced by the “All In” team, and features music by Eddie Cooper. You can see more of our work including links to things we mentioned here by going to

Related Links

"The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay" by Emmanuel Saez, Gabriel Zucman

"Can We Tax the Rich? with Jesse Eisinger" (February 12, 2019)