Because the whole point is that the billionaires, the whole problem is that the billionaires, they don't pay or barely pay any income tax.
Good afternoon and welcome to the Yes on 40 podcast. My name is Dave Reagan and I am really excited today to be joined by the man a lot of people would say is the leading expert on income and wealth inequality in the world. His name is Gabriel Zucman. He is in California. He has authored a number of articles and a number of books on economics and inequality and wealth inequality. And we're just very excited to have him here today. So, welcome Gabriel.
Thanks so much for having me on.
So, you know, I'm not going to recite all of your credentials because they're lengthy and I think people who are paying attention to the billionaire tax campaign in California, you know, are probably familiar with your work. But I thought it would be helpful if you could begin by just giving people, the listeners and viewers, what is the state of income and wealth inequality right now in the United States and perhaps even beyond that. But where do we pick up the story as we get ready to do Proposition 40 here in California?
Yeah, absolutely. I mean, there's been an explosion of wealth inequality in the US over the last decades. And probably the most striking part of this evolution has been the surge in billionaire wealth. Billionaires used to own the equivalent of 1% of total US wealth in 1980, and now they own about 7% of total US wealth. So that's their share of everything in the US. All the assets, real estate and equity and financial assets, they own 7% of everything there is to be owned in the US.
Just to put it in perspective, the billionaires, a word we hear a lot, how many billionaires are there in the United States that now hold the 7% of wealth you're referring to?
According to Forbes magazine, there's about a thousand billionaires in the US at the moment. Now probably they miss a fair number. So you should think of that as probably a lower bound for the true number of billionaires. But in any case, it's a tiny fraction of the population. We're talking about less than 0.0001% of households in the US who have more than a billion dollars in wealth. But this tiny fraction of the population owns a big fraction of total. And so let's just say to be conservative, between 1,000 and 2,000 people. This is not even a small town in the United States that we're talking about, the number of people you could put in a good-sized movie theater, and they have 7% of the wealth in the richest country in the history of the world. That really is a remarkable thing.
It's a remarkable thing. I agree. Another way to quantify their wealth and their influence is to look at how big their wealth is relative to the total GDP of the US. So that is relative to the value of all the goods and services produced in a given year in the US. And now the billionaires own wealth equivalent to 35% of US GDP. What it means is that if they spent all their wealth, these roughly 1,000 to 2,000 families, they could buy more than a third of all the goods and services produced in a given year in the US. And for sure they don't spend all their wealth, but they spend a lot of it by buying media companies, funding think tanks to defend their interests, spending lavishly on politics, on campaigns, spending many millions to try to fight Prop 40. And so this statistic that they own in wealth the equivalent of 35% of GDP I think is the most striking way to illustrate their enormous influence and their enormous power.
And to put this in context in the history of our country, how does this level of wealth concentration for today's billionaires compare to earlier periods in the United States?
This level of wealth concentration is unprecedented. If you look at the Gilded Age of the late 19th century, early 20th century, the oligarchs of the time, the top 0.00001% of the population, people like Rockefeller or Carnegie, they owned wealth that was equivalent to 4% of US GDP. Now when you look at that same fraction of the population, so really here we're talking about the very, very top, that would be 20 households today. Now those 20 households, they own 13% of GDP in wealth. So by that metric we're way past the level of extreme wealth concentration that was observed at the peak of the Gilded Age more than a century ago.
And just to put a California perspective on it, those top 20 households in the United States include Mark Zuckerberg's household, include Sergey Brin's household, Larry Page, the two founders of Google, that a fair number of the 20 richest people in America are in fact in California. Am I correct in saying that?
That's true. Yes. California has been especially good for billionaires. You know, the wealth of California's billionaires has grown even faster than the wealth of other billionaires in the rest of the country. California's billionaires now own wealth equivalent to 50% of the GDP of California. So again, what this means is, and we're talking about roughly 250 billionaires in California, if those 250 households spent all their wealth, they could buy half of everything that's produced in a given year in California.
And I think another statistic that we computed recently with my colleague Emmanuel Saez, and which I think gives a very concrete sense of the wealth of California's billionaires, is to compare their wealth to the income of people in California as reported in their tax returns. You know, AGI, adjusted gross income, the income you have to declare and on which you are typically taxed in California. And what we found is that the wealth of California's billionaires, 250 people, is as large as the total income reported by all California income taxpayers in a given year. The wealth of the billionaires is 100% of the total AGI of California's taxpayers.
That's the positive aspect behind the rise of billionaire wealth. There are many negative aspects, but the one positive aspect is that now there is a big potential tax base to tax. Taxing them could generate a lot of tax revenue.
So, one of the things that we've heard from the billionaires themselves and some of their supporters is actually this line of argument that makes it sound as if billionaires are being victimized by Proposition 40. The notion that we need a one-time 5% tax to backfill these enormous health care cuts initiated by the Trump administration, that that's unfair, and they actually want to cast themselves as victims. And I'd like for you to just comment on that given how much you know about this topic and how long you've studied it.
I mean, I think everybody understands how absurd this claim is. We're talking about the main beneficiaries of the current economic system. By definition, these are the wealthiest people. Their wealth has been multiplied by a factor of 40 since the 1980s. Just over the last couple of years it has increased almost 250%.
So first of all, you know there is that. Second is if you look at the taxes that they currently pay, you realize that they pay very little in taxes. Their income tax is 0.2% of their wealth. Some of the wealthiest people in California pay no or almost no income tax, whether at a federal level or in California, because when you're extremely rich, it's in fact very easy to avoid the income tax. It's very easy to structure your wealth such that this wealth will generate little or no taxable income.
And so for instance, the Google founders that you mentioned, which are currently the second and third wealthiest persons in the world, in some years they pay no income tax on the income that they derive from their ownership of Alphabet. And how do they do that? They don't pay themselves a salary. Alphabet until very recently didn't pay a dividend, and they don't sell shares, and so they don't realize capital gains, and so their taxable income is very low. And there's nothing illegal in that, right? That's how the system works. But the implication is that you have some of the wealthiest people in the world who can pay no or almost no income tax.
And just to finish on that, it's why the proper way to tax them, to tax the super rich, is a tax on wealth, because income is easy to manipulate for them, but wealth is much harder to manipulate.
So I think a lot of people have heard and certainly know of Warren Buffett, you know, the very famous investor, you know, frequently in the media, and he has said many, many times publicly, and I should say Warren Buffett is one of the 10 or so wealthiest people in the world, and he says that his secretary pays a higher effective tax rate than he does. Does that sound right to you?
Yeah, I think that's absolutely correct. And as a statement, as a fact, it is true. Now, whether it's the right way to organize society or the tax system, no, that's not right. That's not okay. It's unacceptable and it's absurd. Why do we allow the wealthiest people in the world to have a lower effective tax rate than middle-class workers? That is a profound economic and democratic anomaly. It's a violation of the basic principle of equality before the tax law, equality before the law, which is at the core of the social contract, at the core of what it means to live in a democratic society governed by the rule of law. And so, it's high time, frankly, that we start fixing this anomaly.
