Taxing billionaires

The economist Gabriel Zucman has long been a proponent of a global wealth tax. He has an essay (gift link) in the NYT explaining what that is and how it would work. Note that the problem of billionaires paying very little in taxes is now international, as his statistics illustrate. In the USA, the problem is that billionaires rarely have any salaries to speak of:

Why do the world’s most fortunate people pay among the least in taxes, relative to the amount of money they make?

The simple answer is that while most of us live off our salaries, tycoons like Jeff Bezos live off their wealth. In 2019, when Mr. Bezos was still Amazon’s chief executive, he took home an annual salary of just $81,840. But he owns roughly 10 percent of the company, which made a profit of $30 billion in 2023.

If Amazon gave its profits back to shareholders as dividends, which are subject to income tax, Mr. Bezos would face a hefty tax bill. But Amazon does not pay dividends to its shareholders. Neither does Berkshire Hathaway or Tesla. Instead, the companies keep their profits and reinvest them, making their shareholders even wealthier.

Unless Mr. Bezos, Warren Buffett or Elon Musk sell their stock, their taxable income is relatively minuscule. But they can still make eye-popping purchases by borrowing against their assets. Mr. Musk, for example, used his shares in Tesla as collateral to rustle up around $13 billion in tax-free loans to put toward his acquisition of Twitter.

Slashing the corporate tax rate and getting rid of the estate tax have also had dire effects in terms of wealth distribution:

Historically, the rich had to pay hefty taxes on corporate profits, the main source of their income. And the wealth they passed on to their heirs was subject to the estate tax. But both taxes have been gutted in recent decades. In 2018, the United States cut its maximum corporate tax rate to 21 percent from 35 percent. And the estate tax has almost disappeared in America. Relative to the wealth of U.S. households, it generates only a quarter of the tax revenues it raised in the 1970s.

The bottom line here could not be clearer: the effective tax rate — that is, the percentage of someone’s total income that they paid in taxes in all forms — has now actually become lower for billionaires than it is for the bottom 50% of income earners. Here’s the effective tax rate in 1960 and 2018 for these two groups respectively.

1960

Bottom 50%: 22%

Richest 400 taxpayers: 56%

This was during a Republican administration btw.

2018

Bottom 50%: 24%

Richest 400 taxpayers: 23%

Internationally speaking this is a collective action problem, since capital and people are both now very mobile, but Zucman’s proposal addresses that. In terms of US domestic politics, the fact that billionaires pay lower taxes than Starbucks baristas sounds like a series of political ads just waiting to be made.