Well, thank you. Thank you so much for being here. Thank you for having me. It's such a pleasure to be with you today and a particular pleasure to give this lecture named after Uwe Reinhardt, who is in a pantheon of mine. Uwe continued a long and distinguished tradition in which the mission of social scientists is not to defend or to justify the world as it is, but it is to point to its unfairness, to point to its flaws, and to try to contribute very modestly, very humbly, to proposing improvements, to proposing solutions. And Uwe did that marvelously as a scholar of US health policy, but also as a critic of US health care policy, with the US health care system with its very high prices, sky-high prices, incredible complexity and opacity, and of course massive inequality in both access to health care and health outcomes. Uwe didn't shy away from telling people things they didn't want to hear about the US, about the world. And today we must not shy away from telling, from putting words on what we see, which are things we'd rather not see but that we cannot unsee. And that's the incredible rise in the forces of oligarchy in many parts of the world and very much including in the United States.
So if we want to start studying this problem, it's useful to take along a broad historical perspective, and you can do that if you focus on the very, very top of the distribution, because in a given year we always have a sense of who are the richest persons in society. And so you can go back to 1850 and you can compute the wealth of, you know, the top 0.00001% richest Americans. That's about 19 households today. About four households at the beginning of the 20th century. And there are different ways to kind of express the magnitude of their wealth. But perhaps the most meaningful is to compare it to national income or to put it differently to net output, meaning the value of all the goods and services that are produced in a given year. Now if you do that back to 1850, this is the graph that you see. You see that at the peak of what came to be known as the Gilded Age at the beginning of the 20th century, those wealthiest Americans, you know, again a very tiny number of people, owned in wealth the equivalent of 4% of national income, 4% of output, meaning if they had spent all their wealth they could have bought the equivalent of 4% of the value of all the goods and services that are produced in a given year in the country. Now today, this group owns in wealth the equivalent of 12% of US national income. Again it means that if those 19 households spent all their wealth they could buy 12% of all the goods and services that are produced in the US in a given year.
Now, why should we care about that? Why do we care about that? For most people, wealth is a good thing. Something we'd like to encourage wealth accumulation. We'd like to encourage wealth accumulation for the working class, for the middle class, because wealth is safety. It's money for your old days or in case you face shocks like unemployment. But of course, for the super rich, wealth is not that. They don't accumulate billions for their pensions. Wealth is power, and an extreme concentration of wealth always means an extreme concentration of power. The power to tilt markets by buying competitors for instance. The power to influence the prevailing ideology by buying media companies. The power to influence policymaking, the power to buy elections. All the economists, but not only the economists, you know, the social scientists or even the philosophers who have written about democracy all the way back to Aristotle, have pointed to this fundamental tension in democratic societies about extreme wealth on the one hand and the very possibility of a well functioning democracy on the other hand.
Now one of the things that the super rich can do is to buy elections and in the US there is good data, reasonably good data about that where you can look at how much is spent in campaign donations in each federal election cycle all the way back to 2000 and what fraction of total political spending is done by billionaires. Okay. So at the beginning of the 21st century it was about, you know, 1%, 2% of total political spending that was done by billionaires and today it's about 19%, you know, according to the best data available in 2024, 19% of all election spending was done by billionaires. Okay, so these are the numbers to keep in mind. 0.1% of the population, that's roughly the population of billionaires in the US, own about 6% of total wealth. 0.001% account for 19% of critical spending in federal elections and actually accounted for 33% of donations to the campaign of the person who ultimately won the presidential election. That's the situation.
Of course, it's important to emphasize that it's not only the wealth of billionaires that's growing very fast in the US. All top groups are getting richer. There is a very fast rise of wealth for the top 1%, for the top 0.1% and so on, which is well known, which you can follow in real time using this website that we developed with my colleagues Emmanuel Saez, Thomas Blanchet, and now Leonard Muellauer, realtime.org, where we have monthly series of income inequality but also wealth inequality that's plotted here all the way back to 1976. And so, you know, it's well known but it's worth reminding everybody of the scale of the rise in wealth concentration. If you look for instance at the top 1% wealthiest Americans, they have seen their wealth increase by about 600% since 1976 as opposed to 300% for the average American and 200% for the middle class. If you look at the top 0.1%, the purple line, the top line here, it's a growth in wealth of 1,200%, you know, over that period of time. But now look at that purple line and I'm just adding the very, very top groups, you know, going beyond, going above the top 0.1%, and now you can barely see the purple line anymore because the growth of billionaire wealth, the growth of the wealth of the super rich has swamped everything, okay, for the very top group here, those top 19 wealthiest households. Now, it's an increase in wealth of 6,500%.
All right. So, that's for the US. Now, the global situation is not considerably better. With Forbes magazine data, Forbes has a ranking of billionaires back to 1987. So you can track the wealth of the top 0.01% all the way back to 1987. And so, you know, let's call them billionaires in short. Those billionaires used to own in wealth at the global level the equivalent of 3% of world GDP and now they own the equivalent of 17% of world GDP. Or to put it differently, the wealth of billionaires has increased by 7.5% a year net of inflation, after subtracting inflation, when global income per adult has increased 1.4% a year and global wealth per adult of 2.5% a year.
All right. So that is kind of the facts that we're going to try to grapple with in the rest of this lecture. And I want to start by trying to discuss how we can understand the rise of top end wealth and the rise of billionaire wealth in particular. And now there's just one equation in the whole lecture and it's here and it's not complicated. And it's just going to highlight that essentially if you want to understand what's going on, there's a race between rates of returns on wealth and taxes. This equation is both very simple and in fact, you know, in truth, it's quite complex. It's very simple because it just says that for any individual, wealth in period t+1, wealth next year is your wealth today in year t times some rate of return that you're getting on your wealth, which is this r term, minus the taxes that you pay. So if you have to pay taxes on your wealth or taxes on capital income, that's going to reduce the return that you get. So that's tau. And on top of that, where you get some other income, could be wages, could be government transfers, and you consume, and so your other income net of consumption is this b term, you know, on the right of the equation. Very, very simple, just the law of motion if you want, the dynamic of wealth, except that, you know, the rate of return is stochastic, so that's why it's r tilda, and the other income component can also be stochastic. Then you are looking at stochastic processes that are, you know, actually rightly sophisticated to study, which are known as Kesten processes, and so there's a kind of branch of mathematics that studies the properties of those Kesten processes, and that finds that under certain conditions the distribution of wealth converges to some steady state, there's an equilibrium, and the steady state distribution of wealth is characterized by the fact that it follows at the top a Pareto distribution. Pareto was this economist, this Italian economist of the late 19th century, early 20th century, that showed that income and wealth distributions have this power law shape, and so that are characterized by a lot of concentration, and the Pareto coefficient that characterizes how much inequality there is depends precisely on r and tau. So if there is a higher return, if r is higher, everything else equal, you're going to have more concentration of wealth. You could even have a diverging process with no steady state. But if tau is higher, then everything else equal, you're going to have first, you're going to get some convergence and the steady state distribution is going to be characterized by less inequality. There's really a battle between, you know, what really matters for the dynamic of wealth accumulation is those cumulative multiplicative processes where your initial wealth is multiplied by 1 + r - tau, and so r and tau are really two forces. So what this means is that if you want to understand the rise of wealth concentration you need to understand r and you need to understand tau. So are returns on wealth? Well, you know, there's a huge body of work in economics trying to study that, trying to explain what are the forces that might have pushed the rate of return up for the very rich. That includes things like globalization. If you are the owner of a big multinational company, you know, maybe it's going to magnify the return on your wealth. This includes things like the rise of market power, the decline of antitrust, that increases also your return on wealth, the return on your equity, you're going to make more profit for any dollar of wealth invested in the company. This includes technology. Technology, for instance, with AI, it's possible that capital is going to be able to do many, many things that were previously done by workers, and so there's going to be more substitutability between capital and labor, and typically we think of that high substitutability as affecting the return to capital. Okay, so that's for r, but today I want to talk about the other component which is tau, you know, which is, okay, what is happening with the taxes of the very rich. So in principle, you know, r rises with wealth for the reasons I described, but in principle tau also rises with wealth. You know, that's the way we think about our tax systems, we think that we have a progressive income tax where the rich are going to pay a higher fraction of their income in tax than the rest of the population. But the question, do they actually pay more tax, you know, and how does this tax rate vary with wealth and vary with income is the question I want to ask now. So we tried to provide a first answer in the case of the US in a study we did in 2019 with Emmanuel, where using publicly available data we provided a first estimate of the taxes paid by US billionaires, or more precisely the effective tax rate of the Forbes 400 wealthiest Americans, and we were able to do much better recently, again with Emmanuel Saez, but also with Danny Yagan and Alexaej Balaj, in this paper where we were able to match the members of the Forbes 400 to their individual income tax returns and to the tax returns of the businesses that they own. Okay, in a fully confidential manner in the secure IRS data environment of course, but it's the first time that such a merge was ever done in any country. Okay, you take the 400 wealthiest Americans and you look at what they actually as a group pay, not only personally but also through the businesses that they own. And so what we found is what's shown here. So for the entire US population, if you look at the graph on the left hand side, you have the total average tax rate of the average American, it's about 30%. In the US the ratio of taxes to national income is 30%, meaning on average the average person in the US pays 30% of his or her income in taxes all included. So it's not just the individual income tax, but it's payroll taxes, it's corporate taxes that are allocated to shareholders, it's sales taxes in the states that have a sales tax, property taxes, estate taxes, everything. And it's not just federal taxes, it's federal plus state plus local taxes. Okay? So, on average, 30% for the average American, quite stable over that period from 2010 to 2020. And then for the top 400 and especially for the top 100 wealthiest Americans, they used to pay about as much relative to their income as the average American. But after the Tax Cuts and Jobs Act of 2018, their effective tax rate dropped and today they pay around 24% of their income in taxes, about six points less than the average American, or even 22% for the top 100 wealthiest Americans. Okay. Now, if you look at, if you express the taxes they pay, and again I emphasize that it includes everything. So for instance, it includes the corporate taxes that they indirectly pay through the businesses that they own. If someone owns 20% of a company and the company paid a billion in corporate tax, we are saying that the person, the individual, has paid 200 million in corporate tax. You know, that's factored in in the tax rate of the billionaires that I show here. Now, if you compute that as a fraction of wealth, there's an even more striking evolution where the total tax rate as a fraction of wealth has declined from about 3% 15 years ago to about 1.5% in more recent years. Now, a sharp drop in just a few years.
Okay. So, kind of the first version of that study was done five, six years ago when we only had access to public data and it was limited in many ways. But it had one kind of virtue which is that it encouraged people all over in different countries to try to do the same, you know, to estimate how much the super rich pay in taxes in their country and to do that in a way that would be maximally comparable with not only other social groups but also with other countries. And this international research project, you know, I've spent most of my time over the last years trying to contribute to that, for instance, you know, doing the study for the US but also for contributing with my friends David Seim and Marius Ringstad to doing the study for Norway and Sweden. There's very good work that was done in France, in Italy, in the Netherlands. We have ongoing work in Brazil, you know, in about 10, 12 countries now.
And we also made some progress in kind of refining the conceptual framework to study this question rigorously. So it's a very basic question, the question of how much each social group pays in tax. You know, one of the most basic elements of information in modern democracies where the government collects about 30, 40, 50% of national income in taxes, we'd like to know who pays more, who pays less. Okay. And it's in fact a surprisingly difficult question to study rigorously. Okay. Okay, you need to, for some taxes it's pretty obvious who pays them, right? The individual income tax for instance, but then you have the corporate tax, you have other levies that are not directly paid by households. And so if you want to do things consistently, rigorously, you need a little bit of a conceptual framework. This body of work started in the 1940s with two economists who were living in the US, Gabriel Kolko and Helen Tarlo, who are the first to ask this question, who pays taxes? Who pays the taxes? That's their 1942 book. And building on that we refined the concept. We went all the way up to the billionaires and we tried to make this project not only US specific but truly international.
Okay. So that's what you see. So now if you rank people by their pre-tax income on the x-axis. So P010 is the 10% of the population with the lowest income. P1020 is the next 10% and then you zoom in a very fine grain zoom at the top all the way up to dollar billionaires who are both at the top of the wealth distribution and the top of the income distribution. And now on the y-axis you have their effective tax rate which is just the total amount of tax they pay, again including everything at all levels of government, divided by their income. So you get this, I think, troubling or at least perhaps interesting chart where pretty much in all countries other than the US, I'll get back to the US in a second, you see the same pattern of the working class, the middle class, the upper middle class paying 40, 45, 50% depending on the country, depending on the size of government in taxes with a tiny bit of progressivity, but not a lot. And then a collapse at the top and billionaires having the lowest tax rates of all social groups. So essentially what this new international research project shows is that collectively globally we just fail to tax the super rich effectively.
Now what's the reason for that? The reason is on this chart here which is just the same figure but focusing on just one tax which is the individual income tax. The progressive income tax is supposed to be the way that we make the rich contribute their fair share. It's supposed to be progressive. The rate is supposed to increase with income. But you can see that no matter whether it's, and to some extent it does, you know, up to, you know, 99, 98th percentile, you know, the income tax is progressive and then past some threshold that varies a little bit across countries there is a sharp drop off. Drop off is really extreme in the European countries that are shown here where whether it's the Netherlands, Norway, Sweden, it goes essentially to 0%. The income tax vanishes among the super rich, pay barely any income tax.
A few years ago there were revelations by the US media ProPublica on the taxes paid by US billionaires and you know you saw people like Jeff Bezos or Elon Musk in some years reporting very little income, paying very little income tax. There's even one year where Bezos says, you know, look, I'm so poor that I'm going to claim the child tax credit. And he receives the child tax credit. And there's nothing illegal in that. I want to be very clear. That's the way the income tax works. If you found ways to report very little taxable income, then you're not going to pay any significant amount of income tax. And what those studies reveal is that the problem is indeed structural. It's not just a few isolated individuals. It's a global problem. The problem is that the income tax just structurally fails to tax the super rich because when you're extremely rich, it's very easy to structure your wealth such that this wealth will generate no or very little taxable income. So in the case of Bezos for instance, as CEO of Amazon he didn't pay himself any significant wage, as shareholder of Amazon he instructed Amazon not to distribute dividends, he didn't sell shares and so he didn't realize capital gains and so his taxable income was truly low even though his economic income, his share of Amazon's profit today is really high or his wealth already at the time was extremely high.
Now that's what we've learned. What we've learned to summarize is that the income tax, the progressive income tax which was created at the end of the 19th century, early 20th century in many countries was a big revolution at the time, a big international movement. More than a century after its creation in the US, the constitution had to change. The 16th amendment had to be passed to allow for federal income tax. You know, a century after this kind of tremendous revolution, this revolution remains incomplete and the super rich have not yet entered the income tax.
There's another lesson from that work which I think is quite interesting which is that the US in fact does a bit better as you can see than other countries, than European countries, but that would also be true of Brazil which would be similar to European countries here. The US seems to be so far the country that does the best job at taxing its billionaires. I'm not saying that it does a great job, you know, which I think the sharp drop off here in the black line is highly problematic, but also it doesn't drop to zero. It falls to about 9% for billionaires. That's not a lot, but that's more than zero. And so, what's the reason for this? The main reason is that the form of tax avoidance that's done by European billionaires that allows them to pay close to zero actually is not possible in the US. The way people do it in Europe is they use personal holding companies. They put their wealth in holding companies and it's those holding companies, think of them as kind of shell companies that don't have real activity, that earn income, that earn dividends mostly free of the individual income tax and also essentially free of corporate taxes. Now in the US it doesn't work like that. Why doesn't it work like that?
Because the US does not allow this form of tax avoidance. And the reason is because of what happened in the 1930s. In 1933, there were, in 1933 the New York Times revealed that J.P. Morgan, one of the wealthiest persons of the time, had paid no income tax in 1931 and 1932, and it caused a huge scandal. And they explained, you know, there was an investigation by the US Senate and the US Treasury and it appeared that the way he had avoided the income tax was precisely by using personal holding companies and earning dividends through those free of the personal income tax. Now, it was during the New Deal and so at the time the US government said, 'Look, that's not going to work like that. That's not the way the income tax is supposed to work.' And so, they changed the law and they introduced pretty high tax on personal holding companies precisely to discourage the use of such structures to such an extent that today this does not exist anymore in the US. You know, US billionaires cannot use those shell companies to avoid the income tax. The US does a bit better. They found other techniques obviously, but that prominent form of tax avoidance which the studies show have become systematic in Europe is not allowed in the US.
Okay. So, that's for taxes as a fraction of income, taxes as a fraction of wealth. If you look just at the individual taxes that are paid by billionaires and you express that not as a function of their income, as a function of their wealth, you can see that billionaires, they pay around 0 to 0.5% of their wealth in personal taxes. I'm putting a reference line for 2% here for reasons that will become clear in a second. And what's interesting and what I want to talk about now is that they pay low personal tax rates even in the countries that have wealth taxes. That's the case here in France that had a wealth tax until 2017. That's the case in Norway that still has a wealth tax. Norway is widely seen as the country with the best functioning wealth tax. And so even in the countries like Norway with the best wealth taxes, the effective tax rate of billionaires, personal taxes as a fraction of wealth is really low, you know, 0.3%.
So why is that the case? Why, how can we understand the failure of existing and past wealth taxes? It's a pretty troubling problem. And in my view in fact one of the main blind spots of the social democratic experiment in Western Europe. Let me just say one anecdote, you know, to kind of give you a sense of this enormous political and intellectual failure. In 1981 there's a socialist government that comes into power in France. Socialist president, socialist parliament with an absolute majority. And so, they created a wealth tax. They created a wealth tax in 1981. But the billionaires of the time, they say, 'Well, we don't like it. We're not really in favor.' And they get an exemption. The socialist government says, 'Okay, well, you don't like it. Okay, well noted.' And so in that case we are going to say that anyone who owns more than 25% of a company, 25% of the shares of a company, all that wealth is going to be removed from the base of the wealth tax. But you know, this is what it means to be a billionaire is to own shares in a company. And so the French wealth tax is immediately modified like that. And it is that, if you want, it's a bit as if the US today was creating a wealth tax and said, 'Oh, but we're going to exempt Elon Musk or Warren Buffett,' you know, they have a lot of shares in their businesses, in SpaceX and Berkshire, and so we remove that, they're not going to pay taxes on that. So that's what the French socialists did. And so why did they do that? Why did they do that? So perhaps...
They wanted to buy kind of social peace from the billionaires, like essentially saying, okay, we want to transform society in a number of dimensions, we want to change the labor market, we want to do this and that, and please let us do that, and in exchange for that we will not tax you. That's one interpretation. Another interpretation is that, and this is not inconsistent, is that essentially they viewed themselves as being in a position of weakness in the sense that they had a feeling that they were powerless to fight international competition. And you have to understand that social democracy always thought of itself as a purely national project. It never tried to go global. It never tried to craft, those social democratic leaders never tried to craft international agreements to tax multinational companies or the super rich, or they never tried to kind of protect themselves in any serious manner against the risk of international competition and especially international tax competition. They accepted international tax competition as a kind of law of nature. And so if you view international tax competition as a law of nature, like gravity, you're powerless to do anything about that. You know, of course, the billionaires are going to threaten to leave. And so the only thing you can do is to not tax them. But that's the way they viewed it. They viewed things.
And it's been a crucial, dramatic blind spot because, of course, in reality, you can try to export your standards. You can try to export your norms. You can try to forge international agreements. You can try to push for tax harmonization. But also you can take unilateral measures. You could say, okay, people who move abroad, they will still have to pay taxes in their origin country where they have built their wealth. You can condition market access to foreign billionaires and the foreign multinationals and the billionaires who own them on paying a minimum amount of tax or more broadly meeting a certain number of requirements with respect to pay policy, with respect to carbon emissions or what have you. But they didn't do that. They didn't do any of that. And that blind spot is coming back to haunt Western European social democracies. Look at France for instance. So like in the US, in France we have rankings of the super rich. 1996 is the first year of the ranking. The 500 richest families owned in wealth the equivalent of 6% of GDP. Today it's 45%, 42% of GDP. That's really a lot of money, you know, again means if they spend all their wealth they could buy about half of all the goods and services produced in a given year in France. And it's really a big rise in just 30 years. Look at Sweden. Sweden is really a particularly interesting case. Sweden, and you can compare it to the US. Look at the same fraction of the population, 0.001%. Roughly the population of billionaires in the US in dollars and also roughly the population of billionaires in dollars in Sweden. In 2001, they owned in wealth the equivalent of, you know, 15% of GDP in the US, about 8% of GDP in Sweden, but today the number is actually the same in both cases. They own the equivalent of 30% of GDP in wealth. Sweden is, you know, billionaire wealth has been rising even faster than in the US relative to the size of the economy, and there's been a complete convergence.
So what's really important to understand is, well, you have two ways to view the historical failure of wealth taxes. There's one way to view it which is to say, well, it's not technically feasible. I know perhaps we'd like to do it, but it just doesn't work and it will never work. And there's another way to view this, which is that in fact it's possible, it was largely a choice to not make those taxes work. And I think the evidence is more consistent with that second view, which I'm going to illustrate here with the case of Norway. Again, back to Norway, this kind of best wealth tax in the world. The orange line is how much wealth tax the different groups of the Norwegian population pay relative to their income. That's really tiny for the super rich. It even becomes regressive at the very top. But is it like, is it because it's not technically feasible? Not at all. It's number one because in the Norwegian law there is a discount if you own stocks, and what rich people own is stocks. And so if you get rid of the stock discount, you get the second line, the blue line. But mostly it's because the way businesses are valued for the purpose of the wealth tax is they're valued very, very generously for only a fraction of their true market value. Now in Norway they have really good data where you can link people to their firms, and so we can, as researchers, we can try to value, and presumably if we can do it as researchers, the administration, the tax administration could do it. We could value those firms at their true value, what the owners would get if they sold their shares on the market. And in that case, this is how the wealth tax would work and could work like tomorrow based on the data that exists in Norway if it was designed to actually be effective. And you see that it would actually generate quite substantial tax rates at the very top. Okay. So where are we going next?
I think that in retrospect, the years 2024, 2025, 2026 will be seen as the beginning of a turning point, beginning of an international movement to actually try to address the issues that I highlighted. And it started in 2024 when the government of Brazil had the presidency of the G20 and they wanted to put on the agenda of the G20 some new ideas for international economic cooperation. And in 2021, as I'm sure many of you know, there was a commitment by 130 countries to implement a minimum tax on the profits of multinational companies, 15%. The G20 had been the kind of the driving force, one of the driving forces behind that agreement. And in 2024, Brazil thought, okay, what should be the next step? What should we do? And they asked me, and I told them, look, I think what you should try to do is what we should try to do is to do what we've done for multinational companies. Let's try to do it for billionaires. So create a minimum tax, a binding minimum tax for the super rich. The problems are the same. These are the economic actors who have most benefited from globalization, and yet they have lots of opportunities to avoid taxes. And so the minimum tax is the most powerful tool because it kind of targets all forms of tax avoidance possible. You don't have to specify that you're targeting one scheme or another. And so they commissioned this report to me in which I explained that, okay, let's try to create this new principle that, you know, it's very basic and it was designed to be consensual, and I think it is largely consensual. The idea that extreme wealth should come with unavoidable duties towards society. There has to be a minimum. There is no right if you are a billionaire or a centimillionaire, more than 100 million in wealth, to pay zero. So you have to pay a minimum even if your reported income, like in the case of Jeff Bezos, is zero. No matter what your income is, no matter what your merits or demerits are, you know, no matter how much you've innovated, we don't care. Extreme wealth, as we know, is always an extreme power, and it shouldn't be tax-free. There has to be an unavoidable minimum. And you might say, okay, well, that's really very, very basic, and yet it doesn't exist in the law of any country. And the proposal that was formulated was to express this minimum not as a fraction of income, because the whole problem is that the billionaires find ways to report no income, very little income. So of course it would make no difference, but that the minimum should be computed as a fraction of wealth, which is hard to manipulate. Right? Hence the idea of a minimum tax expressed as a fraction of wealth, and the rate of 2% was not chosen randomly. The idea is, what is the tax rate that everybody can agree with, or for which there is no good reasons to go below that, and that's the tax rate that would ensure that the super rich pay at least as much in tax. They wouldn't pay more, but as much as the other social groups. That's what the chart here shows. Now that's how 2% was computed. If you take rich countries as a whole, and it's true for essentially all countries individually, if you create this new principle that centimillionaires have to pay each and every year a minimum of 2% of their wealth, then you're going to get to a situation which is really not progressive or ambitious in any meaningful sense. But it's just getting rid of an anomaly of something that, you know, nobody can accept, which is this current situation of regressivity. Or to put differently, there are many, there's a legitimate debate to have about the proper degree of tax progressivity, meaning the extent to which the rich should pay more tax relative to their income than the rest of the population. But there is, and it's normal to disagree, and, you know, it's always going to be a central element of political debate, and that's good, and it's healthy that we all have different opinions about that. But there's no good reason for accepting a situation where the super rich pay less. That's just a basic violation of the fundamental principle of equality before the law. And in particular, when applied to tax policy, equality before the law means equality before the tax law. The most conservative interpretation that you can make of that principle is that taxes should not be, could not be regressive, that the superior should not be allowed to pay less than the rest of the population.
Let me just mention that this is just kind of, well, let me skip that. Let me discuss why I think very briefly that we are at the beginning of an international movement. I mean, we are seeing kind of proposals like that bubble up everywhere. In February of 2025, the French National Assembly actually voted this minimum tax of 2%, which was then blocked by the Senate conservative majority, but is going to come back very soon. And, you know, it's also being discussed in Belgium, in the Netherlands, in Spain, in Brazil, and many other countries. But what I find most interesting is what's happening in California. And I'm sure many of you have followed the 2026 California Billionaire Tax Act, which is a proposed ballot initiative that would create a 5% one-off tax on the wealth of California's billionaires. If it collects roughly 900,000 signatures, which is, I think, likely to happen, then it will be put on the ballot in November. And the situation in California, and we run the numbers with my colleagues Emmanuel Saez and Jasper B., is pretty much like in the US as a whole. The billionaires have a really low tax rate, lower than the average person, and especially they pay very little in California taxes, the equivalent of 2% of their wealth. And the top four richest Californians pay especially little, close to 0%. So the 5% one-off tax relative to what they pay today, that would be a big change, right? They pay 0.2% to California, and now they would have to pay 5% one-off. But it would be also very tiny relative to their wealth and the rate at which their wealth has increased. You know, as you can see here, the wealth of California billionaires essentially has increased 150% over the last three years. And so you ask them to pay 5%, you know, if the 5% wealth tax had been in place since 2025, that's the counterfactual evolution of their wealth. You know, it makes no difference whatsoever for them. But, and that's the whole paradox, it makes a big difference in terms of how much they pay today and in terms of tax revenue for the state of California, because we're talking about a hundred billion dollars in additional tax revenue. They have two trillion. So you tax that at 5%, it's a hundred billion dollars for the state of California. And so you might say, well, this is, you know, this is really low, 2%, 5%, you know, what are we talking about? What's going on? Well, you know, what's going on is that, you know, fiscal history is full of surprises. And we need to start somewhere. And nobody claims that 2% or 5% one-off is going to be remotely sufficient to address the very powerful oligarchic trends that I started describing at the beginning of the lecture. But we have to start somewhere, and the income tax also started very low at the beginning of the 20th century here in the US, and then, you know, went all over the place with rates of as much as 90% during the middle of the 20th century. And so let me just finish with that. For a long time, there was this idea in the US that there should be some kind of legal maximum income. And there's this very famous speech by FDR in Congress in 1942 where he says, I think that no American should have an income after paying taxes of more than $25,000, of the time about two million today. Therefore, I propose a 100% tax on all income above $25,000 with no exemption whatsoever. No, not even for interest on municipal bonds, nothing. 100% on any income above $25,000. And Congress, you know, hesitates a little bit, but they agree on 94%, which, you know, is not terribly far from 100%. And of course, everybody understands that this has absolutely nothing to do with generating revenue. It just has everything to do with the idea that we need some maximum income because excessive income, excessive wealth is just corrosive for democratic institutions, for democratic society. And so, of course, this question of capping income is going to come back in the 21st century with the question of whether there should be a cap on wealth. And of course, there should be a cap on wealth. Everybody understands on some level that, you know, if someone becomes a multi-trillionaire by chance or gets in a situation where he owns out of luck 99% of all the world's wealth, that's not good. We don't want to take the chance to be in such a situation. And so there has to be some, there has to be some cap at some level, but it's also very difficult to know where the cap should be. And so we have to experiment, just like there was a lot of experimentation with income taxation. So let me just conclude by saying, even 2%, 5%, it's going to be a very fierce battle. It's been a very, and it still is a very fierce battle in France, where when the 2% minimum tax was close to being enacted in the fall, the billionaires came in full force explaining how it would destroy basically the French economy. But what I want to say is that it's a good battle. It's a productive battle to have. It's a productive battle because it's going to be the opportunity collectively to invent the new institutions, the new policies that are going to help regulate wealth and power and that are going to allow democracy to flourish in the 21st century. Thank you so much.
