Gary Stevenson: “Your Kids Will Be Poorer Than You” | Prof G Conversations

Do you want everything to be owned by the tiny elite or not? If you do not want everything to be owned by a tiny elite, you have to aggressively tax extremely high levels of wealth. Because otherwise, if you're Jeff Bezos, what is what's he worth? $300 million, $300 billion, right? Even if he makes 5% a year, right? Which he's going to make way more than that. Even if he makes 5% a year, he's making $15 billion a year, right? And it's just going to grow, right? It's going to grow unbelievably quickly.

Uh, I'm in my flat in uh London, East London, close to Canary Wharf.

Okay. Fancy.

I think there's obviously been an increase in the salience of discussions around in particular taxation of the rich. If I'm totally honest, I think still when these conversations take place, as much as obviously from my perspective, it's great that they're taking place more often, I think they are still often a little bit facile in the sense that they and and I think that is because especially in the US context, they're happening in this context of this incredibly factional political debate where it's very much my side, your side, and it's very frustrating for me because my background as you know is I'm an economist. I'm a trader and what I see is rapidly growing inequality of wealth which I think is increasingly obviously pretty directly causing rapidly increasing poverty, rapidly falling living standards. And what I would like there to be is like a grownup sensible conversation where we say okay how do we stop this? But in reality that's not really what is happening. What what tends to happen is people like well to be honest it's often not people like me it's it's sort of become two sides. It's like tax the rich and no don't tax the rich because it's impossible. And it's the conversation has it it has become factional in this way that it has not really created the space which I would say really allows anybody even me to have a really sensible conversation about how can we actually do this in a way that actually works. And I think that's true on both sides really. I don't I don't think anybody and you know I I work quite hard out here to try to find the people who are really doing the work on how can we do this sensibly and I'll be totally honest those people are not getting funded really by the people who are actually working on how do we really design this are not really getting funded and it feels a little bit like it's being sucked into the sort of whirlpool that is politics. Um, but if I'm totally honest, that is a significant improvement on where we were one year ago, 2 years ago, because at that point in time really, nobody was really talking seriously about reducing inequality at all. So, have we moved into a better place? Yes. Are we on the verge of fixing this problem? I I I don't think we're quite there yet.

I think it's quite simple to be honest. Uh if they are designed well, then they are effective. If they are designed badly, then they are ineffective. I don't think it's really any more complicated than that. Um I think inheritance tax is a form of a wealth tax. Uh I think it worked relatively effectively to to stop very high level wealth accumulation in in the US in the UK in at least the sort of 30 40 years immediately following World War II. Um once you see these this inheritance tax effectively removed inherence tax is already effectively removed especially for the very rich in uh in the US and the and the UK that's when you start to see this this wealth transfer start. So, you know, we had a form of a wealth tax and that limited inequality and we removed that wealth tax and inequality started to increase. Um, if you want to find examples of wealth taxes designed and implemented badly, you will find them. And if you want to find examples of planes that were designed and implemented badly, you will find them. And if you want to find examples of spaceships that were designed and implemented badly, you will find them. The result of designing a plane badly, the correct response to that is not to stop trying to design a good plane. is to design a good plane. It's as simple as that about it. But listen, because exactly as I've just said, the debate is is in a facile place and the debate should take place on okay, we have an urgent crisis of growing inequality. Badly designed wealth taxes are not going to work. Let's really get some sensible and smart people together and design a wealth tax. And listen, I've been lobbying the the government out here, as you probably aware, the Labor government and before that the Conservative government for a long time. And what I say to them is put a little bit of money into a team of good economists and let me have access to them. Let me speak to them. It's not going to take much because I cannot describe to you how horrendously underfunded this area is. Really, if the UK government or even the US government was to fund six good economists and good practical economists and say make the US the world leader on wealth taxation that is unavoidable to the super rich, then the US would become the world leader in that because it is so underfunded. So really like and of of course you're going to get badly designed well tax. I'll tell you exactly why. Because we urgently need a wealth tax. And people like me are massively ringing the bell on that, but we do not have the funding to design the wealth tax. So what you will get is, to be honest, quite childish political parties saying, "We're going to give you a wealth tax without giving us the funding we need to design the wealth tax." And then what they're going to do at the same time is they're going to try to keep their funders happy and they're going to try to keep their donors happy, which means they're going to put loopholes in the wealth tax. And that's what's going to happen. But the response to that is not to give up fixing the problem. The response to that is to fund a good team to design the tax well. And I wish, you know, and I guess we're having it now. I wish there was space in the media to have this conversation of, look, these taxes are hard to design, but they're important. So, let's do the work and design them well. But it's become this stupid debate of, oh, this essential thing, which if we don't do, society is going to collapse, is quite difficult and has been done badly. Let's give up. And I think that is an absurd stance to take if I'm honest.

I think if designed correctly it can work. I think you obviously obviously if you're talking about annual taxation on wealth if you start that at a low threshold there is an administrative burden. So I would probably say your ideal solution is a combination of as you say estate taxes on high amounts and wealth taxes. But if you're going to talk about wealth taxes you probably do want to start at a relatively high threshold because of the administrative burden. But also let's be realistic. The income tax system has an incredibly high administrative burden. You know, I think if we were in a situation now where we didn't have an income tax and we was to have that conversation now about income taxes, it would be widely claimed by the press that income taxes are impossible because of the administrative burden. You know, so this is this is possible. You know, of course it is possible. Um, but I think unfortunately this thing kind of happens where if I'm totally honest, I think there is a lot of bad faith argument from rich people who do not want to pay more taxes that what they want to do is split hairs on the exact design of the taxation to try to avoid being taxed at all. The reality of the situation is we live in a country the UK and you know the Americans who will be listening also live in a country where very rich people once you're talking about people have wealth of above 10 20 30 40 50 million pounds or dollars pay significantly significantly lower rates of tax on overall lifetime income than poorer people and they are rapidly accumulating we wealth at an enormous rate far faster than the rates of growth of economies at the same time as other groups of society. most obviously governments but also including the working class and the middle class are rapidly losing their wealth share you know so something needs to be done I think wealth taxes could work if they were designed correctly I think capital flight is a legitimate risk I think it can be managed and minimized if the tax is designed correctly I think inheritance tax on large states should obviously be part of the game here but they've been massively demonized by the press um I understand why they've been demonized because what you've created now is an economy we live in economies now where if you are not giving a significant inheritance to your kids the the the economies that we live in the UK and the US if you are not giving a significant inheritance to your kids if your kids aren't getting realistically something close to a million dollars your kids are in trouble and if your kids getting close to nothing they are basically [__] that is the economy that we've created so what we have created to be honest is an inheritocy is not capitalism in any way outcomes for individuals especially for younger generations are incredibly related to the amount of inheritance they get and their parents. So we've c and that is because that is entirely because we tax work income and we do not tax hoarded wealth, right? But then obviously people have become very defensive because they're like don't touch my inheritance. Don't touch my inheritance. But the truth is if you do not touch the hoarded wealth of the very rich then everybody else is going to get squeezed out. But the very rich do this very very clever thing where when I say tax them they do this bait and switch which is oh what Gary really wants is to tax you.

Yeah. You know what this is actually a really good story for describing how to do this badly. Right. So the the nonom principle is like a really old principle of British taxation that dates back to like colonial times which was basically you've got all these like foreign colonial Brits that making tons of money overseas and they're not paying their tax in the UK because they live overseas and basically the UK says well you guys can come back and you know you can live in London presumably wherever you want to live and we're not going to tax you on your overseas income or all of your overseas earnings. And this is to basically encourage historically you know these foreign very obviously Britain was this massive colonial empire these foreign Brits to to come back and and spend time in the UK and spend their money in the UK and it's been unpopular obviously because well obviously that's historically nowadays it's not used by colonial Brits obviously empire is long gone now this is used by you know stereotypically Russian billionaires but you know a variety of foreign billionaires it allowed them to live in London and enjoy the benefits of living in London. and have these enormous incomes and basically pay very little British tax because that is on overseas income. Billionaires assets that they own overseas. And this is a good example of exactly the wrong kind of people you should go after from a practical perspective because these are people who have very weak ties to the UK and can leave. Right? Because when we talk about billionaires, right, there's British billionaires that own British assets. There's British billionaires that own foreign assets. There's foreign billionaires that own Brit British assets. And there's foreign billionaires that own foreign assets, right? And it's you can obviously take that to the US. And the group of billionaires that you have the weakest power to tax is pretty obviously foreign billionaires who own foreign assets, right? These people is, just to be clear, you're not totally powerless on taxing these people. The best example, especially for a country like the US, is tariffs. You know, the tariffs is to some degree an attempt by the US government to tax foreign billionaires with foreign assets because you're taxing them on their things that they sold to the US. But especially as a small country like the UK, this is a a group of people who you are relatively weak to tax and they can leave. What you should be trying to tax in my opinion is people who own your domestic assets because then they can leave and if they're owning assets in your country they're still generating income from your country and you still have power to tax it. So I think but this is it's a good example of what I'm saying where the media salience has come through on okay inequality is a problem you know and I would like to claim you know partial credit for that but we haven't really cleared because it's become so factional and the whole thing has become you know is Gary an idiot or is Zach Palansky an idiot or is mammi an idiot we haven't really created a space where both sides acknowledge the truth which is basically the left acknowledges taxing the rich is hard and Work needs to be done on designing these taxes correctly. And the right acknowledges if we don't do anything on it then living standards will continue to fall and poverty will continue to grow and we build some sort of like cross left right consensus on doing this and the conversation is not really happening. So what you end up and what you will continue to end up with in my opinion is badly designed populist policies. But that's not where but it's not what it should be. what you should really have is a group of, you know, experts who who come from a starting point of something has to be done on inequality. But at the moment, unfortunately, you know, we don't have that. But I'm hoping the end result is what it ends up with is people like me unfunded running a YouTube channel trying to build like a global tax think tank. And it's absurd. It shouldn't be done by me. But what are the Democrats doing on this? The fact that Labour have not done anything is just a comedy to be honest. It is really absurd.

Well, there's a lot of questions about the exact numbers here and there's a lot of speculation that perhaps some people and some groups have tried to put out misleading or inaccurate numbers. But, you know, I'm sure some people will have left. We probably don't know the exact numbers on it.

Well, these people are basically allowed to not pay effectively any taxes at all, right? These foreign bill that's that's what the nom situation was there for. Um to be honest, you know, different people differing opinions on how this affects the UK, these people leaving because these people were not paying tax in the UK anyway and they would definitely have been driving up rents and house prices in London. But some people would say they would be bringing economic benefits to London. Um I think it's listen you can have a question about whether you want to allow foreign billionaires to live taxfree in your country. That that is essentially this is this is what the nondom rule is about. It is a question of do you want to allow foreign billionaires to live taxfree in your country. Um it's it's probably, you know, from a sort of moral ethical stance, I think it's it's questionable how good a choice this is. Um but some would argue it has economic benefits. The big question is, do you want your domestic assets, the assets of your country to be owned by foreign billionaires? And I think it's important to recognize that these are two separate questions. And to be honest, I don't have any particularly strong opinion on whether the UK or the US should allow foreign billionaires to live taxfree in their countries because to be honest, that's not what I'm concerned about. What I am concerned about is the loss of wealthing of British and American families and the British and American governments. That is and if these foreign billionaires don't own British and American assets, then they are not the people who are squeezing out the British and American public. So, in a sense, it's not really connected to my campaign in any way. What I'm talking about is taxing the people who own your country, who own your wealth, cuz that is the wealth ownership which you can affect and which you can influence with your taxation policy.

I agree to be honest. I saw that. So it's clever because you know if we compare it to what we just discussed, right, which is the nondom the nondomon tax. The nondomon tax, you're trying to raise tax on foreign billionaires who own foreign assets. This is a group of people over which you, the British government, the American government has a pretty weak hold, right? Because they they're not citizens of your country and they own enormous amounts of wealth, not in your country. These are the people who most easily can leave. And what I said to you was you want to tax people who own the assets in your country because these people cannot escape the tax. And I think what what Zora Mammi has done there. I'll be honest, I was quite impressed because you you probably picked up from our conversation so far, I am worried about bad implementations coming into place. Um, and what I saw when he did that was pretty much exactly as you say, this is canny in the fact that it's targeted. It will effectively hit, I would imagine, pretty much exclusively very wealthy people and very wealthy people who cannot avoid the tax. And that is smart. But I want to be clear, in theory, in principle, it is a lot less fair than a wealth tax or an estate tax, right? Because this is taxing a specific subset of wealthy people, people who own very expensive second homes. It's a pretty good proxy because a lot of wealthy people will own second homes. Um, but you know, how much is it going to hit the real problem, which is like Jeff Bezos, Elon Musk? In reality, it's it's not. So, I think it's a cleverly designed tax. It's well targeted. It reassures me that there are some people working on the design here who are canny and practical and are cognizant of the risks of flight. But the real big problem, especially in a country like America, is the real big dogs, right? It's the musks, it's the bezoses, it's the billionaires. Um, and this tax is not going to hit them. So, clever tax, welldesigned, not the complete solution. But of course, Zoran Mandani, he's not the president, right? He's the he's the mayor of New York. So I think he's he's designing a good he's designed well attacks in the context of the powers that he has but I think we could do more to fix the real problem if we start talking about what national governments can do which is obviously more

Um, it feels to me a little bit technically messy. I think it would be I mean I'm not necessarily against it. I think the most the more obvious and graceful solution is to just stop step up at death which seems I I don't see for those who don't know this is the the idea is you know you pay your capital gains tax when you sell um and rich people can solve that by never selling and every time they die and give their assets to their kids the the purchase price gets reupdated to the the price when they inherited it which basically means capital gains tax never gets paid by the rich. Um the reason again this doesn't actually solve your bezos musk problem and I think you know I know I know bezos and musk are only two people but what they stand for is the billionaire class which these are the guys who are really going to eat everything you know the rate at which these guys are going to go it doesn't solve that because people like bezos and musk they use as you say this borrowing solution so but the reason they borrow is because it means they never have to claim any income right and they're using the borrow ing to cover their day-to-day spending. And of course, the day-to-day spending of somebody like like Bezos is obviously massive. You know, famously, he rented out the whole of Venice for his wedding, whatever. From the perspective of an ordinary person, his day-to-day spending is enormous. Bezos's lifetime spending is nothing. It is a drop in the ocean compared to Bezos's lifetime income. So, if you try and fix this problem of his borrowing against this thing that gets made a lot of in the, you know, on social media, in the press, which is these guys don't pay tax cuz they borrow against it. to be honest that it's it's actually that is not really the the problem because that is to cover their spending and their spending is like less than like 0.1% of their lifetime income. The problem is quite simply that they pay an incredibly low percentage of tax as a percentage of their lifetime income. But to be honest, it's it's not even that. It's not even that. The problem is quite simply if you do not tax very rich people like Bezos and Musk at really very high rates, the problem is quite simply compound interest. It's as simple as that. Even if you were to successfully tax Bezos and Musk at 40% of lifetime income, excluding inheritance, once you start including inheritance, then you can actually stop aggressive wealth growth. But if you were to tax them, even at 40%, which is, you know, a million miles from where you tax them now, their wealth would still grow much faster than the economy. The question here is really, it's quite a simple mathematical question, right? Do you want everything to be owned by the tiny elite or not? If you do not want everything to be owned by a tiny elite, you have to aggressively tax extremely high levels of wealth. Because otherwise, if you're Jeff Bezos, what is what's he worth? $300 million, $300 billion, right? Even if he makes 5% a year, right? Which he's going to make way more than that. Even if he makes 5% a year, he's making $15 billion a year, right? And it's just going to grow, right? It's going to grow unbelievably quickly, right? So really, to be honest, I think the the borrowing thing is it's a bit of a myth because the the amount that these guys borrow is is immaterial relative to how much they earn. So I think that's a little bit of a red herring.