Why should everybody have to pay year after year, or even every quarter? If you're self-employed, you have to make advance tax payments every quarter, and the government really insists that it's important for you to pay your taxes each and every quarter. But for the billionaires, oh, that's okay. We can wait for several decades until they die before we stop making them pay anything. That's not logical.
Welcome to Prof G Markets. At the height of the Gilded Age, the top 0.00001% held wealth equivalent to 4% of the nation's GDP. Today, that number has tripled to 14%. By this measurement, wealth inequality is three times worse in America than at the Gilded Age peak. Our guest today has spent nearly two decades trying to understand how we got here. French economist Gabriel Zucman has mapped wealth concentration and traced fortunes through tax havens, trying to figure out how the world's richest accumulated so much wealth so fast. Gabriel is the founder and director of the International Tax Observatory and also author of the book "We Need to Tax Billionaires." He advises policymakers around the world on how to tax wealth. Most recently, he helped design California's proposed billionaire tax, which voters will consider in November. In France, he even has a tax named after him, although it has yet to pass. So, we wanted to ask him how wealth got this concentrated, what it would take to reverse this trend, and whether a wealth tax is actually the answer. Here is our conversation with Gabriel Zucman.
Gabriel, thank you so much for joining us on the show today. I just want to start with a pretty basic question. We've seen some of the inequality statistics. How bad is it, and how did we get here?
Thanks a lot, and thanks for having me. One of the most striking evolutions of the world economy over the last decades has been the explosion of billionaire wealth, of extreme wealth. Perhaps one number: if you take a global perspective, global billionaires owned wealth equivalent to 3% of world GDP in 1987, which is the first year of the Forbes ranking of global billionaires, and today their wealth is equivalent to 17% of world GDP. So we are talking about broadly 3,000 families who, if they spent their wealth, could buy 17% of the value of all the goods and services produced in a given year globally.
And we see this trend everywhere. We see it at the global level. We see it in France, in Europe, and we see it in the US. It's been even stronger in the US, where billionaires own wealth that's equivalent to 30% of US GDP, and even more in California. In California, Californian billionaires have wealth equivalent to 50% of California's GDP. So we see this upsurge in extreme wealth. There are different reasons, different factors behind this evolution.
One that has been very important has been the dramatic changes in taxation since the 1980s, especially in a country like the US, which used to have one of the most, if not the most, progressive tax systems in the world in the middle of the 20th century, with corporate tax rates of 50%, with top marginal income tax rates of almost 100%—90% on the highest earners—with top estate tax rates of nearly 80%. That was the reality in the US between the 1930s and the early 1980s, and then it went all the way in the opposite direction in the 1980s.
To take just one example, when Ronald Reagan entered the White House in 1981, the top marginal income tax rate for the highest earners in the US was 70%, which was at the time the highest among industrialized countries in the world. And then in 1986, there is the big Reagan tax reform, and the top marginal tax rate is reduced to 28%, which at the time was the lowest among industrialized countries. So in just five years, it is a very radical and profound transformation.
And there are many reasons to believe that this has been one—not the only, but one of the main drivers behind the rise of income and wealth concentration globally, and the particularly fast rise of inequality in the US.
There's the tax rate, which, as you point out, came down. I assume it was largely a story of trickle-down economics, which sounded good, and now we kind of know where it's led the US in terms of wealth inequality. So there's bringing the number down, but then there are also these other things, like there's tax loopholes. There are these interesting little things in the tax code, an increasingly complex tax code, and there's also the rise of tax havens, which you talk about. Talk a little bit about what else in our taxation system changed, because it seems like there's more to it than just the rates.
True. You're absolutely right that the rates are important, but there is more than that. There is also the explosion of tax avoidance and sometimes tax evasion. And what you have to understand is that tax avoidance, tax evasion—these are not laws of nature. They are largely policy choices.
And just to clarify, what is the difference between avoidance and evasion?
The traditional distinction is that avoidance is legal, and evasion is either illegal fraud or is in a gray zone. And often it's in that gray zone between what's legal and what's obviously illegal, meaning it accords with, or to some extent with, the letter of the law but not with the spirit of the law.
Anyway, what's really important to understand is that these things—they're not laws of nature, and they change a lot over time. So policymakers can choose to fight tax avoidance and evasion, to create the social norms that are going to be conducive of high tax compliance.
And that's what happened again in the US in the middle of the 20th century, when you had people like FDR who said how important it was for people to pay their taxes, that taxes were the price to pay for a civilized society—like making it normal and good to pay your fair share. Or you can also have policymakers encouraging tax avoidance by saying that, yeah, you know, if you can avoid taxes, that's great, and you should pay the smallest amount possible anyway.
So you have these changes in social norms that have had very concrete implications, with two things. One is the growth, the development of a big tax planning, tax avoidance industry. There's a whole business now that's very large, much larger than it was 40, 50 years ago, that just helps corporations and the rich optimize or avoid their taxes. And the second thing is indeed the rise of global tax havens, meaning countries—often relatively small countries—that offer incentives, that offer special tax deals to multinational firms or to wealthy families: reduced rates, less tax to pay.
But what's important to understand is that this initially was just a handful of countries, but then over time pretty much it has generalized, meaning all countries are playing this game of trying to attract some profits, some activities, some rich people at the expense of their neighbors. And that's a powerful inequality engine, because this form of international competition is inherently negative-sum. It's not growing the pie. It's not growing the world economy. It's just trying to steal a bit of money from other countries. And so from that perspective, it's zero-sum. But in fact, it's way worse than that. It's negative-sum because the main beneficiaries of that process are multinational firms and rich people, and so it fuels inequality.
There are a lot of people who might listen to this, perhaps wealthy people, who hear this and think, "I pay a lot in taxes." And the statistic that we often hear about is that the top 1% of Americans pay around 40% of, or contribute to around 40% of, the tax revenue. What would you say to someone who says, you know, "I pay a lot, you're basically saying pay more"?
So, a couple of things. Number one, this statistic on the top 1% paying 40% of tax revenue—that's just if you focus on the federal income tax, so just one tax. But that's misleading, right? Because you have many other taxes, and in particular state taxes, sales taxes tend to be quite regressive. And so if you take a comprehensive picture of taxation, if you look at all taxes paid by people at all levels of government, everything included, including payroll taxes, everything, what you see is that the top 1% accounts for about 20% of total tax collection in the US, which is roughly their share of income. The top 1% earns 20% of all income,
and they pay 20% of all taxes. Meaning their effective tax rate for the top 1% as a group is the same as the average tax rate for the entire population. They don't pay more, they don't pay less. So that's number one.
Number two, I would say that in the US, it's true that high-income—or at least high-income professionals—pay a decent amount of tax. They could, in my view, pay more, and I think the US government needs more tax revenue for healthcare, for education, for infrastructure, and so they could pay more. But at that juncture, the big anomaly, the big problem, is not with high-income professionals, you know, the upper middle class, let's say—it's with the billionaires.
The billionaires, they pay much less tax than the rest of the population. So the average tax rate for the entire population in the US is around 30%. For billionaires, all tax included, it's only 24%. For the top billionaires, the top 100 wealthiest people, it's around 21, 22%. So there is here something that's just not acceptable. That's a violation of the basic principle of equality before the law. Equality before the law, if you apply this principle to tax law, means that wealthier individuals shouldn't be allowed to pay less tax relative to their income than the rest of the population. But that's precisely the situation—not for the top 1% as a whole, but for the billionaires. It's a very small fraction of the population, but that's where we have a big problem.
And the problem is essentially that for billionaires, the income tax doesn't work well, because when you're extremely rich, it's in fact very easy to structure your wealth such that this wealth will generate no or very little taxable income. That's how you have people like Jeff Bezos or Sergey Brin or Larry Page—in some years they have barely or sometimes no taxable income, and so they don't have income tax to pay. Their companies don't, or until recently didn't, distribute any dividends. They can avoid realizing any capital gains. They don't need to sell their shares. They pay themselves sometimes just $1 in compensation, and so they just pay, you know, a tiny amount of income tax.
And that's not—it's not illegal, it's not tax evasion, you know, it's perfectly legal. That's how the system works. If you find ways to have no taxable income to report, you have no income tax to pay. And what the recent studies have found is that the problem goes way beyond just a few anecdotes or a few case studies, but it's a structural problem, a structural limitation of the income tax. The ultra-wealthy are not yet part of it. That's the problem that we need to fix today.
So to be clear, the invention of the income tax has been an incredible democratic revolution, one of the most important economic transformations of the 20th century. It happened at the beginning of the 20th century in different countries at roughly the same time—in the US in 1913—and then the income tax became quite progressive during the course of the 20th century, a major source of government revenue. This is what has allowed countries to build their modern tax system and, in turn, to invest in what has been the key driver of economic growth, which is education for all, healthcare, public infrastructure, and so on. So it's been really important, but this revolution is an unfinished revolution, because the ultra-wealthy are not yet part of the system.
One of the things that we talk about is this idea of the buy, borrow, die strategy. Because when you talk about those billionaires, they're not paying themselves. The value of their equity is just going up, and that's how they're rich. But then there's this question of like, okay, well, then how do you pay for your life? And our understanding is that you borrow against your assets, and that that is not—because you're basically just borrowing against your billions, you're not realizing a taxable event. Could you talk a little bit about this borrowing strategy and the extent to which you think it is a real problem in terms of the lifestyles of billionaires, how they're able to fund their lifestyles without really paying anything in taxes, at least on the income side?
Yeah, you're right that this is how they often fund their consumption, their lifestyle. They don't realize any income. They don't pay income tax. They don't have taxable income. But to pay their personal consumption expenditure—their yachts, their vacation—okay, they borrow a little bit of money. And there's a whole industry, a whole part of the financial industry, that does just that, that provides liquidity to ultra-wealthy individuals to fund their lifestyle.
What's important to understand is that sometimes there is this idea that, oh, why don't we just tax this borrowing and that would fix the problem. But that's not true, because what's important to understand is that this borrowing is just not very big. It's not very big because the consumption of the ultra-wealthy is small relative to their true income or relative to their wealth. Right? When you have an income that's in the billions of dollars per year, you're not going to be able to consume a billion dollars per year. That's impossible. Perhaps 10 million, 20 million, but more than that is really complicated.
And so, by definition, as you move up the wealth distribution, saving rates tend to converge to almost 100% of income, and consumption becomes very small relative to income. And people—they need to borrow, the billionaires need to borrow only to fund their consumption. So if you tax that borrowing, okay, cool. You're going to tax a few millions per year. But that doesn't get at the heart of the problem, the core of the problem, which is that most of the income of the billionaires—the fraction of their income which is saved, not consumed—would remain tax-free.
If you want, in fact, to ensure that billionaires pay their fair share, you need to have some kind of tax that's based on wealth, just because for them wealth is the right indicator of the ability to pay taxes. And look, this is something that's been long understood, even in the US, which never had a federal wealth tax—an annual federal wealth tax. There's an estate tax, which is a wealth tax just at the time of death. But this is where it's been well understood for a long time. Let me just mention one example.
In 1949, there was a commission including a number of American economists, chaired by the Columbia University economist Carl Shoup, and with people like William Vickrey, who went on to win the Nobel Prize in economics, on taxation in Japan. So, how to build a tax system, a well-functioning tax system in the new Japanese postwar democracy? So, how does the ideal tax system look like when you build it from scratch? And what those American economists said is, they said, first, number one, you should do like the Americans. And so in 1949, it meant a highly progressive income tax with rates of up to 80, 90% for the highest earners.
But they also said that's not enough. In addition to that, you need a wealth tax on the super-rich, because for the reasons I just explained, the super-rich can easily avoid the income tax. And Shoup and Vickrey put it in writing. They said, "Oh, by the way, we should also do that in the US, but it's complicated because of the Supreme Court and what have you." But they said, Japan, do that. And Japan had a wealth tax on the super-rich in 1951, 1952. They abolished it very quickly because they said it's not bringing any money. And of course, you didn't have billionaires or super-rich people in Japan right after World War II.
But what I want to explain, what I want to make sure people understand, is that this logic—that in the ideal tax system you have not only a progressive income tax, not only an estate or inheritance tax for meritocratic reasons, but also an annual tax on extreme wealth—the idea that this is the package, you know, of a well-functioning tax system in a democratic society—this idea has in fact been understood for quite some time.
We'll be right back after the break. And if you're enjoying the show so far, send it to a friend, and please follow us on YouTube, Spotify, or wherever you get your podcasts.
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We're back with Prof G. I think this brings us to the tax proposal that has been capturing all of the headlines, incredibly controversial in California, that you helped to design, which is the Billionaire Tax Act, which will be on the ballot in California in November. And the idea is to enact a one-time 5% tax on the wealth of billionaires, which would start to get at part of the problem here, which is that their wealth is probably the best indicator of what we should be actually collecting tax revenue on.
There are some criticisms. One of them would be that it's a little bit of a crude way to do it. We're just saying a billion and up. Why not 900 million? Why not 800 million? How did we come up with that number, this arbitrary number? Another would be that it's a one-time tax. Why are we doing it now? What is the timing? Why does the timing make sense? It's not an annual tax, as you said. And then the other is this idea of capital flight. And that is that if you enact something like this, you're going to see a huge exodus of wealthy people simply going into other low-tax states because they won't want to pay the taxes, which will be in a lot of ways self-defeating because you won't actually collect the tax revenue that you wanted to generate.
And that does seem to have happened in previous examples in Europe, where European countries have tried wealth taxes, and a lot of them have been repealed because of this issue, where the rich people just leave, they just go somewhere else. What would be your response to these concerns?
Number one, that is precisely to avoid any risk of exodus, outmigration by very wealthy people, that the California billionaire tax, which will be on the ballot as Prop 40, is a one-time tax. That's the main reason, because ideally, I agree with you that it should be annual, but it's easier to do an annual tax at a federal level than at a state level, where billionaires can move to another state.
And so the proponents of this proposition, they said, okay, let's minimize the risk of exodus by making it one-time. And the way it would work is that any billionaire who was a resident of California as of January 1st of 2026 would have to pay the 5% one-time wealth tax, meaning it is impossible—or nearly impossible—for any billionaire to avoid the tax by moving. The only way that they could avoid the tax was by moving to another state before January 1st of 2026.
Now, the California tax—this initiative was announced in November of 2025. So they had just a few weeks at the end of 2025 to cut ties with California and to change state from a tax perspective, to change residency from a tax perspective. And I want to emphasize that doing this is not a matter of just buying a home in Miami or changing some office space or things like that. No, no, no, no. If you want to be considered a resident in another state, you have to be able to demonstrate that the center of your life is in another state.
So you have to change schools for your children. You have to change doctors. You have to change vets. You have to change burial plots. You know, there's a long list of criteria that the California tax authority—or in New York, they do the same—looks at to determine the residency status, in particular, of very wealthy individuals. And so the best experts in that area of the tax law believe that no billionaire was able to successfully move out of California from a tax perspective in just a few weeks at the end of 2025. So long story short, it is impossible or nearly impossible to avoid the 5% billionaire tax by moving to another state. That was the main reason for making it one-time and designing it like that.
Now, I think what is likely to happen if it passes is that it would probably encourage other states to create their own taxes on billionaires. So you could see similar ballots happening in some years in Washington state or in Massachusetts and so on. And ultimately, this process might pave the way for a federal wealth tax, where it would be much easier to have an annual tax because there's no risk—you cannot avoid the tax by moving to another state.
And this is precisely what has happened for the income tax. The income tax first began at the state level. Most famously, Wisconsin in 1911 was the first state to create its progressive income tax, and then it paved the way for the federal income tax in 1913.
So that's for the annual versus permanent thing. And then your first question was about the kind of arbitrariness of the 1 billion threshold, which I don't disagree with. And so in Prop 40, there is a smoothing mechanism so that it's not like if you're just below 1 billion you pay zero and if you're just above 1 billion you pay 5%. So there is some smoothing.
But I think it's fair to say that there is a need for fixing the tax system not just for billionaires, but let's say people who have more than $100 million in wealth. Oftentimes, you know, they can find ways to pay relatively little in income tax. And so there's going to be a need for a broader reform down the road. But it's useful to start with billionaires because there are very few in number. So in California, it's just around 250 billionaires, according to Forbes magazine.
So they're very visible. It's relatively easy to value their wealth because about two-thirds of their wealth corresponds to shares in publicly listed companies listed on the stock market. And so as a starting point, it makes a lot of sense. It will be easy to have high audit rates, to have good enforcement of that tax, and then if it's successful, it could pave the way for, you know, some evolution in the future.
I think a lot of people would argue, and have argued, that this method of taxation is kind of a slippery slope on the way to infringing private property rights in America. And I think the billionaire's argument would be, you're basically just taking 5% without my consent. Even if I try to go somewhere else, I don't really have a choice. And what if this marks the beginning of an era where we decide that the solution to our problems, to our potentially irresponsible fiscal spending, is to simply take people's money, take people's assets? And some would argue that this is going too far, that it is too aggressive, and the beginning of a cycle that perhaps might not be the right direction. What would you say to those concerns?
Well, I think if we're talking about Prop 40, a 5% one-time tax on billionaires—250 people—those concerns really don't make a lot of sense, because the wealth of those billionaires has increased like 250% just over the last two years. And we're talking about a 5% tax. You know, for them it makes no difference whatsoever. It's just a drop in the ocean.
Billionaire wealth in California has been multiplied by 30 since the 1980s, when average income per family simply doubled. So there is this explosion of top-end wealth. Okay, everybody agrees with that. This extreme wealth is barely taxed today. So I think if we were starting from a situation where those billionaires already contribute a lot and we're adding an extra tax, then okay, I could understand those concerns about, okay, you're asking people who already contribute a lot to pay even more—is that fair? Is that a good idea? That's not the current situation. The starting point, the current situation, is they pay very little.
So just some numbers. If you look at the income tax paid, the California income tax paid by California billionaires, this accounts for about 2% of total California income tax revenue. This is equivalent to 0.2% of their wealth. They pay very little in income tax because they find ways to report no taxable income. So that's the current situation. It's as if they lived in their own parallel society, free of tax.
Everybody contributes to the public infrastructure, the education system, the universities, the healthcare system, which has allowed them to thrive, which has allowed their businesses to grow, to be successful, but they don't contribute. That's the current situation. Many people in California, millions of homeowners, pay a—
wealth tax. They pay property taxes. The property tax is typically around or a bit more than 1% of the value of their homes. But people who have a mortgage, which is the vast majority of homeowners, the property tax relative to the net wealth of those people, if you deduct the mortgage, so relative to their true equity, their true wealth, the property tax rate can be way higher than 1% per year. You know, so you have millions of people who already have relatively high annual wealth tax rates when the billionaires are almost tax-free. This is a situation which, frankly, is unacceptable and that Prop 40 tries to begin to address.
Is there a sense in which Prop 40 might also be designed to punish billionaires? Because I think that one of the difficult things about the taxation conversation and the inequality conversation is that people are very, very angry at billionaires for many of the reasons that you describe — for the unprecedented inequality, the fact that one in 10 Americans are still living in poverty, and at the same time there is such a thing as a trillionaire in America. And I wonder if the aggression and the stringency with which this taxation has been proposed, Prop 40, a 5% immediate taxation no matter what, if that is expressing some level of anger at the billionaires. And that's the part that makes me a little uneasy, because I wonder if there are other ways to tax them, like, you know, you mentioned the borrowing tax, which might not be substantial enough, but maybe reforming the estate tax, increasing the capital gains tax, simplifying the tax code, eliminating loopholes, etc., that might get at the problem without necessarily demonizing billionaires for being the problem.
I think this is really not about their merits or their merits as individuals. This is not about whether they're good or bad people. This is really only about budgetary issues. The state of California needs a hundred billion dollars to offset the deep federal cuts to Medicaid medical in California. So the health insurance for the low-income Americans, which has been slashed in the federal tax bill of 2025. So millions of people are going to lose health insurance. This is going to have a ripple effect on the premiums for private health insurance, which are going to increase. So there's a revenue shortfall, $100 billion, to face to offset those cuts.
Question: what's the best way to get, and the fairest way, and the most efficient and the most effective way to get a hundred billion dollars in California in 2026? Number one, you cannot get anything passed through the legislative process because since 1978, Prop 13, you need a supermajority of two-thirds to pass any tax increase in Sacramento through the normal legislative process. That's why everything has to go through, and in effect goes through, ballot initiatives like the California billionaire tax, Prop 40.
Number two, what are the different levers, different tools that you could play with? Well, you could increase the income tax. Sure, it's not going to affect the billionaires. That's the whole problem. They don't have taxable income, or very little in taxable income. You could tax their borrowing. It's going to be tiny. The whole problem is that their consumption is tiny relative to their income, relative to their wealth. They only borrow to fund their consumption. So it would raise trivial amounts of money. You could change the estate tax, but the estate tax is only when they die. So in 30, 40 years. Why should everybody have to pay year after year, or even every quarter? If you're self-employed, you have to make advanced tax payments every quarter. And the government really insists that it's important for you to pay your taxes each and every quarter. But for the billionaires, oh, that's okay. We can wait for several decades until they die before we start making them pay anything. That's not logical.
So in the current situation where there is this 100 billion revenue need, and the billionaires pay much less than the rest of the population, and you cannot make them pay with the normal tax tools, in particular the income tax, the most effective, the most logical situation is with some kind of tax based on wealth, hence Prop 40. Let me just perhaps mention one thing that I think really clarifies the budget situation and the tradeoff. If you can, let's compare two potential tax bases. So on one hand you have AGI, adjusted gross income, that's the total income that's reported by people on their individual income tax returns. Okay. So total income that's taxed.
And on the other hand, the other base that I want you to consider is billionaire wealth. The value of all the assets owned by billionaires in California, 250 people. It turns out that today they are as big. Total AGI, total income for 25 million Californian families is as big as the total wealth of 250 billionaires. Which means that you get as much tax revenue with a 5% income tax, or an increase in the income tax of 5 percentage points for everybody in California. Everybody has to pay 5% of their income in taxes in addition to whatever they currently pay. This generates as much revenue as the 5% tax on the wealth of 250 families. Okay, currently we're not taxing that wealth. It is barely taxed. They pay in tax only the equivalent of 0.2% of their wealth, while regular families, well, they pay income tax. Some of them pay property taxes. They pay sales taxes. So they pay quite a lot.
And so that's why also, that's the fundamental thing that has changed over the last decade. If you compute this ratio, you know, how big is billionaire wealth relative to total income for the population, the ratio was about 10% in the 1980s, 1990s, meaning the government revenue at stake from taxing billionaires was not very high. And I think many people have remained stuck in the 1980s, 1990s, where they think, well, the billionaires are so few in number that perhaps they don't pay a lot of tax, but who really cares because there's not a lot of money at stake. And that might have been true at the time, but today, that their wealth, you know, has become as large as the total income of the entire population, the situation is just completely different. And when there is a revenue shortfall like today in California, the most logical starting point is with this massive undertaxed base.
I assume you don't think that increasing the capital gains tax dramatically would do it. This is something that we have heard proposed. Maybe we just make the capital gains tax rate equal to the income tax rate. Tax capital as much as you would tax labor. Is your view that that would not be sufficient because billionaires would not sell?
