Transcript00:04taxes essentially the government’s00:06GoFundMe page now00:08today is April 15th which means you have00:10just 45 minutes to file your taxes00:13except relax don’t panic because thanks00:15to the weekend and a holiday the00:17deadline is actually April 17th00:19this year except don’t relax do panic00:21that’s still not enough time to do it00:23right you’re fucked you’re absolutely00:25fucked and you’re going to jail Anthony00:28many people are perplexed and mystified00:31by our tax system perhaps best00:32exemplified by this Instagram video from00:34cardi B you know that government is00:37taking 40 percent of my taxes and Uncle00:41Sam I want to know what you’re doing00:43with my fucking tax money but why does00:44y’all niggas doing with my fucking money00:46what is your with my fucking money I00:49want to know I want receipts I wants00:51everything I wanna go to my cousin00:54weenie00:54[Applause]00:58whoa whoa cardi if you really want to01:01know where your money’s going may I01:02present to you the recently passed01:04omnibus spending package01:09[Applause]01:10because it turns out cardi your fucking01:13money goes to your fucking military your01:15fucking health care and your fucking01:17Social Security and veteran and01:19unemployment benefits everything else is01:21just on fucking discretionary shit and01:22of course interest now as you may recall01:26late last year Republicans passed and01:28Donald Trump signed a tax reform bill01:30and in selling it Trump made some clear01:31promises about who stood to benefit our01:34focus is on helping the folks who work01:38in the mail rooms and the machine shops01:39of America the plumbers the carpenters01:42the cops the teachers the truck drivers01:44the pipe fitters the people that like me01:47best well that that is clearly nonsense01:51because if this bill were really helping01:53the people that like Donald Trump best01:55it would exclusively benefit01:57Eric Trump Roseanne Barr and anyone01:59who’s ever looked both ways before02:00whispering it was the choose and the02:04truth is for all chumps talk of pipe02:07fitters the biggest tax rate cuts by far02:10actually goes to businesses with the top02:12federal corporate tax rate the tax on a02:14company’s profits going from thirty five02:16percent to just twenty one percent and02:19to be fair many policymakers on both02:21sides had argued at the 35 percent02:23federal rate among the highest in the02:25world02:25should actually come down but to be even02:27fairer most companies didn’t pay thirty02:30five percent in fact before the bill was02:32signed to the effective rate the amount02:33companies actually paid was closer to02:36twenty four percent and some large02:37companies have historically paid far02:39less than that02:40you may remember a few years ago people02:42were furious about this ge had profits02:45of fourteen point two billion dollars in02:472010 five billion dollars of that made02:50in the United States but the company’s02:52expected US tax bill a grand total of02:56zero dollars okay so when the total is03:00zero you can’t call it a grand total03:02there is literally no total less grand03:05except maybe total cereal and that’s03:09just because it tastes like your spoon03:10somehow missed the cereal and now you’re03:12just eating the box that it came in03:14and GE may well say we’ll hold on that’s03:17just one year but a recent study found03:20that between 2008 and 2015 18 large03:23profitable companies including General03:26Electric paid no federal income tax at03:28all over the entire period not at all03:31and that is a staggering total which is03:34incidentally what they used to call03:35total with raisins until they got more03:37honest who changed it to total with03:39raises but who gives a shit03:41so tonight in honor of upcoming tax day03:44we thought we’d give you just a glimpse03:46of the lengths that companies will go to03:48to legally avoid taxes both here and03:50abroad03:51now corporate tax avoidance has a long03:53and infuriatingly proud history in the03:561980s for instance a lawyer named John03:58Carroll jr. came up with a tactic to04:00move US companies offshore to avoid04:02taxes and his firm celebrated him with04:05and this is true a 13-minute operator04:07staged in his New York apartment and04:10I’ll give you just a very small taste04:12[Music]04:21Wow04:22we may have just found the only musical04:26resistant to race blind casting you04:28can’t go Hamilton on this one because04:31those people really have to be white now04:34now that the tax dodge being celebrated04:37they’re involved taking an American04:39company and headquarter in it in Panama04:41where taxes were lower something its04:42creator called the Panama scoot which04:45sounds like the name of a tiny elf in a04:47cowboy hat04:49my name’s Panama scoot and I sleep in04:51your boots and offshore scooting is04:55actually something of a common theme in04:57corporate tax avoidance for decades04:59companies have hunted for ways to get05:01their money to friendlier tax havens05:02like the Cayman Islands you may remember05:04that during the 2012 election it emerged05:06that Mitt Romney had money in the in05:08companies in the Caymans which led to05:10this magnificent clip of John Stossel05:12saying the one thing he probably05:14shouldn’t be saying to the person he’s05:15speaking to but Romney pays taxes and05:19all the money earned from the cayman05:22entities i would think it would be like05:24pirate heaven some pirates can’t say the05:34word pirates05:35to a guy with an eyepatch it can’t it’s05:38not fair05:39it’s like me sitting down across from05:41you and calling you bootleg Geraldo yes05:43yes it’s obvious but it’s also lazy and05:46hurtful that’s an indoor thought and tax05:50havens have become magnets to05:52corporations who try and shift as much05:54of their profits there as possible it’s05:56a major reason why in 201605:58nearly two-thirds of the profits made by06:01American multinationals outside the US06:02were booked in just six low or zero tax06:05countries and it’s a lot easier to move06:08profits offshore than you might think an06:10increasingly popular way particularly06:12pharmaceutical and high-tech companies06:15like Google avoid paying the 35% is to06:18shift their patents computer code pill06:21formulas even logos from their US bases06:24to their outposts in low tax countries06:27today06:27a company can move automatically all of06:31its assets just on paper you can push a06:34button and move your algorithms you know06:37could take the recipe out of the vault06:39yeah put it in a Swiss Fault and then06:41and then it’s Swiss yep coke could put06:46that recipe in a Swiss vault and their06:48profits would move offshore that is very06:50roughly how it works although for the06:51record just being in a Swiss vault06:53doesn’t automatically make something06:55Swiss that’s why we don’t call this06:57Swiss gold we call it Nazi gold07:00those are Hitler bucks your Swiss fucks07:02and this this happens all the time07:05and the best innovators in weasely07:08accounting have arguably been tech07:09companies look at Apple for years07:11they’ve been deferring paying US taxes07:13on foreign profits by stashing the money07:15overseas and not bringing it back so07:17much so that at the end of last year07:19they had 269 billion dollars parked07:22overseas and when their CEO Tim Cook07:24appeared in front of Congress a few07:25years back he was very defensive about07:28that07:28we pay all the taxes we owe every single07:33dollar we don’t move intellectual07:35property offshore and use it to sell our07:38products back to the United States to07:40avoid taxes we don’t stash money on some07:44Caribbean island now he was technically07:47correct there because Apple didn’t stash07:49their money on a Caribbean island they07:52did however have it stashed on this07:54island Ireland which is it is true not07:58in the Caribbean so one word made a lot08:01of difference there it’s like if08:02somebody said the one thing I can08:04promise you is that this refrigerator is08:05absolutely not08:06full of severed Caribbean heads maybe08:10that is technically true but I’m still08:11going to pass on a sparkling water and08:13when Ireland indicated that it planned08:15to change its tax laws Apple found a new08:18shelter for profits on this island the08:20Isle of Jersey a tax haven in the08:22English Channel which is again not08:24technically in the Caribbean although08:26when you really look at it you could08:28almost mistake it for the Caribbean if08:30you squint a little drink 9 points of08:32beer and hold a picture of the Caribbean08:34in front of us08:35meanwhile Google used a slightly08:38different tax workaround sending its08:39money on something of a world tour08:41Google license some of the intellectual08:44property it created here in the US to a08:46subsidiary in Ireland but it turns out08:49Google’s overseas profits don’t even get08:51taxed there because Google then08:53reportedly funnels those profits through08:55the Netherlands and then to of all08:57places Bermuda where the corporate tax09:00rate is zero now that tax trick actually09:04has a name it’s called the double Irish09:06with a dutch sandwich it sounds like a09:09disgusting sex act or an even more09:12disgusting Waffle House menu item it’s09:15it’s when someone opens up a baked09:17potato farce in it and closes it again09:19really quick that’s one of it that09:22that’s that is exactly what it is and09:24when Google CFO was asked about their09:27tax policies at a conference his answer09:29nearly got him laughed off the stage we09:31pay our taxes in every jurisdiction to09:34the full extent that the law allows us09:36and that’s what we do we pay every penny09:39of tax we owe to everybody everywhere ok09:43the reaction to the sentence I pay allmy taxes should never be incredulouslaughter unless you are a very wealthy09:50dog who’s just spoken for the first time09:52and here is where I have some good news09:55and some bad news the good news is that09:57Trump’s tax bill actually forces09:59companies to pay taxes on all the money10:01they’ve stashed overseas the hope is10:03that they’ll then bring it home in10:04something called repatriation the bad10:06news is the tax they’re being forced to10:08pay which may have once been 35%10:10remember has been slashed to as little10:12as eight to 15% which seems less like a10:16punishment and a lot more like actively10:18rewarding companies for tax avoidance10:20but Steve minuchin10:22Treasury secretary an objectively10:23good-looking man argues that this would10:26be a huge benefit to America’s workers10:29we will have a one-time tax on overseas10:33profits which will bring back trillions10:36of dollars that are offshore to be10:38invested here in the United States to10:42purchase capital and to create jobs now10:45I know it was hard to pay attention to10:46what he was saying because you were just10:47automatically undressing10:49to go with your eyes and you do it10:51whenever he opens his mouth I’m all10:52right I’m definitely right the guy’s a10:55California ten10:56he’s a smoke show but but what he’s10:58saying there is giving these companies a11:01break on the taxes they owe is worth it11:03because it will lead to job creation and11:05that is hard to completely disprove11:07because anything theoretically could11:10lead to jobs you can say I’m dipping11:12this badger in fudge to create jobs and11:14I can’t prove that you won’t create any11:17jobs by doing that but I would argue11:19that if creating jobs is your main goal11:21there are probably better ways to do it11:23now luckily we actually have the benefit11:25of a test case here because in 2004 we11:27basically did the exact same thing under11:29the American Jobs Creation Act it11:31offered a one-year tax holiday where11:34companies could bring back overseas11:35profits and just a five percent tax11:38rates the idea was that they would then11:39create jobs but when the Senate looked11:43at the employment numbers of the 1511:44companies that brought back the most11:45money this is what they found11:47these are the average numbers of US jobs11:50at those companies over a five year span11:52here is where the big supposedly11:55job-creating tax holiday kicked in and11:57that is pretty fucking underwhelming I11:59would argue that’s the most useless12:01ineffective holiday since Arbor Day and12:03I’m sorry Arbor Day but your secretaries12:06day for trees and we all need to accept12:07that in fact instead of hiring workers12:10across the board companies mostly12:13rewarded their shareholders using 9412:16cents out of every dollar they brought12:18home on stock buybacks and dividends12:20something you can read about in the12:21best-selling book yeah no fucking shit12:23they did that by acclaimed author12:25everyone who knows anything about12:27corporations and look for many of those12:30companies that may have been the best12:32use of their money there is no point in12:33hiring people that you don’t need12:35but the Trump administration is fiercely12:37insisting that this time their tax12:39holiday is already creating jobs and12:42some companies have seemed happy to pay12:43along play-along Apple put out a press12:46release not long after the tax bill was12:47signed titled Apple accelerates US12:50investment and job creation bragging12:52they were about to create over 20,00012:54new jobs and Trump was quick to take12:56credit President Trump tweeting in12:58response quote I promised that my13:00policies would allow companies like13:01Apple to bring mass13:02of amounts of money back to the United13:04States great to see Apple follow through13:05as a result of tax cuts all caps okay13:10first that is a solid read from Jake13:12Tapper there in fact I think all anchors13:15should be forced to shout whenever Trump13:17uses all caps in tweets I’ll show you13:19this morning the president announced13:22that he was quote heading to see the13:24border wall prototypes in California or13:28today today the president wished all13:32Americans are happy Easter but but for13:37all the Trump’s excitement those 20,00013:39Apple jobs were probably going to happen13:41anyway given that the hole was entirely13:43consistent with what Apple was doing in13:45the United States before the tax cut13:47bill passed and Tim Cook knows this this13:49is how he responded when asked just how13:51much of his hiring spree was down to13:54Trump’s new tax plan there are large13:56parts of this that a result of the tax13:58reform and there’s large parts of this14:00that we would have done in in any14:02situation and so I haven’t spent a lot14:04of time in categorizing those two14:06because to me this is about America it’s14:10not about which bucket you put things in14:12yeah but actually it does matter which14:16bucket you put things in because I would14:18rather put things in a bucket labeled14:19smart economic policy than one labeled14:22put money in here I like money thanks14:24dummies Tim Cook and look look there are14:27legitimate debates over how and how much14:30we should tax corporate profits but we14:32just had a huge chance to reform our tax14:34code and we absolutely blew it because14:37effective tax reform is not just about14:39lowering rates14:40it’s about closing loopholes for14:42instance one reasonable idea raised last14:44year was forcing companies to pay a14:46minimum tax in every single country they14:49operate in it’s a bit complicated but14:51that may well have reduced their abuse14:53of tax havens but that proposal never14:55even got out of committee so the result14:57here is that our tax code is still full14:59of loopholes and however much Trump15:01talked about how tax reform would15:03benefit cops and pipefitters15:05it’s worth knowing that once he got15:07behind closed doors his message seemed15:09to change15:09we’re told the president is still15:11celebrating passage of the Republican15:13tax cut bill sources with firsthand15:16which tells CBS News that he told a15:18group of wealthy people at his exclusive15:20mar-a-lago estate quote you all just got15:24a lot richer that’s right so on Tuesday15:28as you scrape together your taxes and15:30like cardi B wonder what Uncle Sam is15:32doing with your motherfucking money rest15:35assured that Donald Trump’s tax reform15:37continues to let companies engage in15:39sophisticated tax avoidance schemes and15:41to those companies I say this on behalf15:44of America please enjoy this double15:46Irish with a Dutch sandwich I made it bu15:49myself eat it while it’s hot15:52[Applause]16:00you
To trace the progress of the wealth tax from a fringe academic idea to the center of the Democratic Presidential primary, it is helpful to begin a bit off-center. On September 15, 2008, the day that Lehman Brothers filed for bankruptcy, a twenty-one-year-old student of Thomas Piketty, Gabriel Zucman, started work as a trainee economic analyst in the offices of a Paris brokerage house called Exane. Zucman felt obviously underequipped for the task before him: to write memos to the brokerage house’s clients and traders helping to explain why the very durable and minutely engineered global financial system appeared to be on the verge of collapse. Poring over some of the data he was given, which concerned the international flows of investments, Zucman noticed some strange patterns. The amount of money that had been moving through a handful of very small economies (Luxembourg, the Cayman Islands, the tiny Channel Islands of Jersey and Guernsey) was staggering. “Hundreds of billions of dollars,” Zucman recalled recently, making the “B” in “billions” especially emphatic. Eventually, he would calculate that half of all foreign direct investment—half of the risk-seeking bets, placed from overseas in India, China, Brazil, and Silicon Valley, and of the safety-seeking investments, placed in the United States and Europe and stock indexes—was moving through offshore hubs like these.
Before the financial crisis, the rise of offshore tax havens hadn’t been ignored—one element of the Enron scandal of 2001, for instance, was the eight hundred and eighty-one overseas subsidiaries the company had created, which had helped it avoid paying federal taxes for three years—but those stories took place within a more confined and more frankly moral framework: it was a cat-and-mouse plot, about the mobility of wealth, and the fruitless efforts to pursue it. Zucman’s intuition was that these arrangements did not describe a moral or a legal drama but a macroeconomic one. That much wealth, poorly documented or regulated, might have helped to destabilize the global economy. It also seemed that, if economists were not attuned to the amount of wealth stored in offshore havens, they might also have missed the extent of global inequality, since it was billionaires who stored money in the Cayman Islands, not retirees. “You know, the way we study inequality is we use survey data, state-tax data,” Zucman told me, “and that’s not going to capture these Swiss bank accounts.” After half a year at Exane, Zucman was back in graduate school, working with Piketty on the study of wealth inequality in the United States and Europe that became Piketty’s landmark book, from 2013, “Capital in the Twenty-First Century,” as well as on his own fixation—on how big the island-shaped loopholes in the global economy would turn out to be.
For the next several years, Zucman followed two tracks. The first led deeper into the mists of offshore banking systems. In obscure monthly reports of the Swiss central bank he discovered that foreigners held $2.5 trillion in wealth there (Zucman would eventually calculate that $7.6 trillion, or eight per cent of global household wealth, was held in tax havens, three-quarters of it undeclared) and that these immense sums were mostly being diverted to mutual funds incorporated in Luxembourg, the Cayman Islands, and Ireland. The second track—the work he did first with Piketty and then with the Piketty collaborator and Berkeley economist Emmanuel Saez—mapped the acceleration of inequality around the world and in the United States. The American story was of a snowball effect, as Zucman described it, in which the very high top incomes of the nineteen-eighties and nineties were saved and invested, “and that creates a spiral which is potentially very powerful and leads to very, very high rates of wealth inequality.” The two stories were in fact one. The concentration of wealth in secretive tax havens was an expression of the broader wealth imbalance—the laissez-faire spirit of the Reagan era working its way through the country and then the world. “One thing that became clear in my mind when I did the study of the U.S. wealth inequality is how hard it is to stop the rise of wealth inequality if you don’t have progressive taxation and, in particular, progressive wealth taxation,” Zucman told me. Without it, the snowball just keeps growing.
This work took place during Obama’s Presidency, a period in which, a bit paradoxically, the global populist reaction to accumulated wealth was consolidating even as liberal institutions, belatedly, began to get a handle on the problem. In 2010, early in Zucman’s doctoral work, Congress had passed the Foreign Account Tax Compliance Act (fatca), which required tax havens to share banking information with the United States or suffer significant economic sanctions. The program worked, and, by the middle of the decade, European regulators had compelled tax havens to share the same information with them. “That actually had a very big impact on my thinking, because it showed that new forms of international coöperation can emerge very quickly,” Zucman told me. “In particular, sometimes we have this view that, ‘Oh, we can’t do anything about tax havens. Countries are entitled to their own laws, and, if they want to have a zero-per-cent corporate-tax rate of bank secrecy, that’s their own right.’ ” But fatca had demonstrated that tax havens were not autonomous zones. “At the beginning of my Ph.D., whenever I or N.G.O.s would talk about having some automatic exchange of banking information, policymakers would say, ‘Oh, that’s a pipe dream.’ And so I witnessed the transition from pipe dream to now everybody does it.” He went on, “It can happen very fast.”
As WikiLeaks oriented international relations around a central tension, between transparency and secrecy, similar themes and patterns were emerging in the area of wealth. To parse them required the tools of an investigative journalist, of discovery and cajoling. Zucman is an economist, but he also had some of the qualities—youth and fervency—that investigative reporters often have, and that made him someone people would go to when they thought something was very wrong. A leaked trove of foreign wealth data from the Swiss subsidiary of the banking giant H.S.B.C. made its way to various national tax authorities, and Scandinavian government officials shared it with Danish and Norweigan academics who were collaborating with Zucman. There were limits to what he could see in the H.S.B.C. trove, but it provided a suggestion of how much wealth from Scandinavian countries was being stored away in offshore hubs like Switzerland. In 2015, when the Panama Papers leaked, detailing the evasion efforts of the law firm Mossack Fonseca, it was possible to see the business of tax evasion in action—the lawyers, the pitch decks, the business analysts. Shrouding fortunes was the work of meticulous professionals; when Zucman and colleagues traced this wealth through tax shelters, they found it often was finally invested in ordinary stocks and bonds. “It was very mundane,” Zucman said.
Gradually, Zucman came to see tax evasion differently. “It’s not a psychological thing,” he said. There was a market. The key player wasn’t the billionaire, but the bankers and lawyers who Zucman came to think of as the tax-evasion industry. The professionals in this industry had bosses, and partners or shareholders; they worked within a regulated system. “If you have banks that feel that they are too big to indict then they will continue to commit some form of financial crimes,” Zucman said. “They will budget costs for fines.” In 2009, tax havens seemed like black holes, sucking out so much wealth that it warped the global economy. By 2019, they seemed dependent on the continued dormancy of the great liberal apparatus of international banking regulation, which could be quickly revived. “And the U.S.,” Zucman said, “you know, if there is a U.S. President that is serious about fighting global oligarchy, he or she has a ton of power.”
Zucman works in a small, spare office next door to Saez’s, on the sixth floor of Evans Hall at U.C. Berkeley. The cinder-block walls are undecorated, and the only personal touch I could see, when we met there a few weeks ago, was a small espresso machine. Zucman is fair-skinned, with round cheeks, light brown hair, and a longish nose, and he was wearing a black V-neck T-shirt and jeans. (The next morning, when we met again, he would be wearing a different black V-neck T-shirt and a different pair of jeans.) The scene seemed a bit unadorned for someone who had, this year, been named by Prospect magazine, in the U.K., as one of the fifty most influential thinkers on the planet. He speaks with a French accent and has an outsider’s sweeping, offhand way of talking. For all of Piketty’s fame—and his own, and Saez’s—Zucman mentioned several times that the economics profession had been slow to recognize inequality as a legitimate topic. He still seemed to have the outlook of a less powerful person than he now is.
Saez and Zucman have written a book, published this month, called “The Triumph of Injustice,” which assembles their research into a policy plan. (Its subtitle is the instruction-manual-like “How the Rich Dodge Taxes and How to Make Them Pay.”) One way to understand the book is as marking a new phase in the project that Piketty, Saez, and Zucman share. Having done more than just about any other economists to describe the powerful effect that accumulated wealth has on global inequality, they are now advocating for a solution: a highly progressive annual tax on wealth, an idea that has been adopted by Elizabeth Warren and Bernie Sanders. Zucman is the junior partner in the enterprise, but he has also been its chief propagandist, duelling on Twitter with economists who raise objections or philosophical gripes, and so the wealth-tax cause has come to reflect some of his own attributes: his tremendous explanatory power, his comfort with being an outsider to the establishment, and his great optimism in what government can know and do about the concentration of wealth.
A few weeks ago, Saez and Zucman flew to Washington for a pair of panels at the Brookings Institution presenting their ideas—one closed to reporters, and the other open to them—and at the open session Zucman gave a ten-minute presentation of the book, which, with admirable concision, boiled the essential story of wealth and the tax code down to two slides. The first displayed the results of their study of the aggregate burden of all federal, state, and local taxes after the 2017 Trump tax cuts, which concluded that the United States no longer has a progressive tax system—statistically, the Trump cuts dealt it a death blow. Most Americans now pay about the same portion of their income to the government (the upper-middle class pays very slightly more), and the wealthiest pay less. The slide is titled “A Giant Flat Tax Which Is Regressive at the Top End.”
To explain how this could be, Zucman likes to use the example of Warren Buffett. Forbes had estimated Buffett’s wealth to be sixty billion dollars, which suggested that his wealth was growing by about three billion dollars per year. But Buffett reported to the I.R.S. capital gains of about ten million—based on his sales of some shares in his own company, Berkshire Hathaway. For many years, Buffett has been pointing out that his tax rate is too low—the line has often been that he pays a lower effective rate than his secretary—and urging politicians to turn the screws a bit tighter on the ultra-wealthy. In response, Barack Obama proposed the Buffett Rule, a principle adopted by Hillary Clinton, in which people making more than a million dollars a year would have a minimum federal tax rate of thirty per cent. As of a couple of years ago, this was the frontier of mainstream Democratic tax policy, but, to Zucman, it was outlandishly inadequate. Raising the rate on the ten million dollars that was accessible to the I.R.S. made no statistical difference at all. The issue was the $59,990,000,000 that they could not touch. Apply the Buffett Rule, don’t apply the Buffett Rule; it didn’t much matter. “Functionally, his tax rate is zero per cent,” Zucman said.
The second chart examines the share of wealth held by the Forbes 400, which has mushroomed from one per cent of total wealth, at the outset of the Reagan era, to well over three per cent today. Had Warren’s wealth tax been in place all along, the Forbes 400’s share would now be about two per cent. Zucman and Saez propose a stricter wealth tax (ten per cent annually), which they say would have held the Forbes 400’s share constant, around one per cent. If you wanted something like the more equal pre-Reagan America for which Democratic politicians often grow nostalgic, they suggest, it would take a tax like that.
At the end of last year, Saez got an e-mail from Bharat Ramamurti, a longtime economic policy adviser of Elizabeth Warren’s, who said that Warren was interested in proposing a tax on wealth in some form. Zucman and Saez created a spreadsheet, using their own estimates of wealth, that allowed the Warren campaign to play around with different thresholds and rates for the tax. At first, Ramamurti sketched out a plan that taxed fortunes of twenty million dollars or more at one per cent. But in Saez and Zucman’s analysis—on the spreadsheet—wealth was so concentrated at the highest end that a more radically progressive tax, one which targeted a relatively small number of households, could still generate trillions in revenue. Eventually, the Warren campaign settled on a plan that would tax fortunes over fifty million dollars at two per cent annually, and those over one billion at three per cent, which Saez and Zucman estimated would raise the astonishing sum of $2.75 trillion over the course of ten years. (The entire revenue of the federal government, in the current budget year, is $3.4 trillion.) To Zucman, the choice had the added effect of averting a political problem that had bedevilled European wealth taxes, which tended to start with much smaller fortunes. “Above fifty million, you can’t really argue that these people can’t afford to pay,” Zucman told me.
Something quietly revolutionary was happening in these conversations, in January, between Ramamurti and the Berkeley economists, and between Ramamurti and his boss. For Democratic politicians and policymakers, taxes have generally served as a tool, to fund a program that they believe the people want. When Barack Obama proposed a broad expansion of public health insurance, his advisers developed an intricate, progressive system of taxes to pay for it, but the rates and thresholds for those taxes had been determined by the cost of the program. Ramamurti and Warren wanted to maximize revenue, and they also wanted to reduce inequality, which meant that they wanted a way to make the wealthy give up more of their fortunes. It wasn’t an ideological change so much as a conceptual one—about how pervasive and controlling the effects of inequality are. Taxing wealth to limit fortunes became a goal in itself.
Elizabeth Warren wasn’t the first candidate to consider tackling American wealth in this way. During the 2016 Presidential primaries, Zucman and Saez had an extended conversation with Warren Gunnels, Bernie Sanders’s longtime economic adviser, after Sanders had expressed interest in the idea of a wealth tax. The Berkeley economists scored various versions of the plan, estimating the revenue and economic effects, and eventually Gunnels brought a proposal to Sanders and the campaign. The reaction among his advisers was mixed, and, among the many other policy ideas the Sanders campaign was considering, this one simply drifted away. Sanders was already asking Americans to dream of a socialist society like Denmark’s or Sweden’s, and the wealth tax, which had not succeeded even in Europe, might have seemed especially exotic, and likely to trigger another round of denunciations in the American press.
After Hillary Clinton won the Democratic Presidential nomination, her advisers also spent several weeks considering whether to propose a wealth tax. As a matter of framing, one of her advisers explained to me, “There’s huge merit in the wealth tax—it does bring into sharp focus the inequity in our tax code as it relates to how you treat taxing income to wealth.” The campaign’s policy officials would evaluate how prone it might be to legal challenges, or to the wealthy avoiding or evading it—but it had an intuitive appeal. Because of the concentrations of wealth, the adviser said, “the sheer amount of money you can raise off a wealth tax is staggering.” Clinton herself was intrigued by the idea, and legal experts prepared memos about its constitutional viability, while Saez and Zucman helped Clinton’s tax advisers measure the revenue and economic impacts. But, as with the Sanders campaign, it was never formally proposed. The adviser went on, “It was a pretty exotic proposal. Given the way the election was shaping up, it didn’t seem like the proposal was going to alter the overarching narrative of the race. The reason I keep coming back to is inertia.”
But in 2016 not even the socialists had made the conceptual leap: that a wealth tax could have political appeal separate from, even exceeding, the appeal of the programs it funded. In September, eight months after Warren formally announced her proposal, Sanders introduced a wealth tax that was more extreme still: it starts at a one-per-cent marginal annual rate for households worth more than thirty-two million, and increases steeply, to eight per cent, on households worth more than ten billion. “What we are trying to do,” Sanders told reporters in September, “is demand and implement a policy which significantly reduces income and wealth inequality in America by telling the wealthiest families in this country they cannot have so much wealth.”
As a political matter, those eight months will be hard for Sanders to make up. The tax itself is now Warren’s signature proposal, and she has refined her campaign message around it. At rallies, she asks the crowd how many people own their own homes, and, once hands are in the air, points out that most Americans already pay a wealth tax on their biggest asset, they just call it a property tax. (“Great line,” the Clinton adviser told me. “We didn’t have that.”) “Your first fifty million is free and clear,” Warren likes to say on the campaign trail. “But your fifty millionth and first dollar, you gotta pitch in two cents, and two cents for every dollar after that.” By the time Warren held a rally before the brilliant edifice of the Washington Square arch last month, the crowds had begun to anticipate the line, and, as her speech wound toward the wealth tax, they chanted back at her, “Two cents! Two cents!” In 2016, Donald Trump would test out new lines at his rallies, little lures dropped into the depths of the crowd. Was there a bite? “Build the wall” and “Lock her up” came back at him, and eventually they became the substance of the campaign. Shout a slogan back to a candidate, and you have explained the campaign to itself.
The real resonance between Zucman and Saez’s proposals and the Presidential campaign of Elizabeth Warren, the champion of the Consumer Financial Protection Bureau, may be in their shared optimism about what the modern American administrative state can accomplish. When I asked William Gale, the co-director of the Urban-Brookings Tax Policy Center, what distinguished Saez and Zucman from the center-left policymakers who had preceded them, he mentioned two elements. First, he said, they wanted steeper taxes on the wealthy than even most progressives in Washington—they were left, not center-left. The second difference, Gale said, was more pronounced. “What I would describe as the previous center-left consensus is that we ought to raise taxes on the very rich, but that’s really hard to do,” Gale said. “Saez and Zucman come in and say, ‘In fact, it’s quite possible; it’s just a matter of enforcement and getting the taxes right—pushing on both fronts.’ Their policy optimism is very different from the conversations that people had in the Obama Administration, where it was often about how the wealthy had these tax-avoidance strategies, these armies of lawyers, that the administrative problems were extreme.”
As Saez and Zucman’s ideas moved to Washington, they met points of resistance, small and big. Jason Furman, who chaired President Obama’s Council of Economic Advisers, recently suggested on Twitter that the rich paid slightly more in taxes than Zucman and Saez’s graphs suggested. But the broader critiques took aim at their administrative optimism. Since the spring, the former Treasury Secretary Larry Summers and his colleague Natasha Sarin, a law professor at the University of Pennsylvania, have been arguing that Zucman and Saez have radically overestimated how much revenue a wealth tax would generate, and that the more realistic return, based on what the I.R.S. had been able to recoup from the estate tax, might be as little as one-eighth of their projections. Sarin told me, “The excitement around the Warren proposal is that, by taxing seventy-five thousand households and imposing a relatively minor additional tax burden on them, we can pay for just about everything we want. If that sounds a little unbelievable, I think that’s because it is a little unbelievable.”
Zucman and Saez published a full response in June, pointing out that, in several European countries that had tried a wealth tax, as well as Colombia, the average avoidance rate was about fifteen per cent; Summers and Sarin, they argued, assumed tax-avoidance rates of between eighty and ninety per cent. “They start from the premise that the rich cannot be taxed, to arrive at the conclusion that a tax on the rich would not collect much,” Zucman and Saez wrote. Their more colloquial argument was that there was nothing mysterious about wealth. Seventy per cent of the wealth of the top 0.1 per cent, Zucman argued, was in the form of stocks, bonds, and real estate—it was easily valued. More portable forms of wealth, like art or jewelry, could be assessed through insurance estimates. The trickiest form of wealth for tax authorities to value is privately held businesses; Saez and Zucman propose in their book that the I.R.S. could make an assessment, and if anyone disagreed they could simply transfer two per cent of their shares in the business to the government, which would then sell them at auction. Zucman’s deeper theory seemed to be that no strong wealth tax had ever been tried. The European models had very low thresholds (often starting around a million dollars), which made them vulnerable to political attack and legislative exemptions. Enforcement was often nonexistent. The largest economy to tax wealth in recent years is France’s, and that levy, Zucman pointed out, relied on self-reporting. “There was a box on the return for wealth, and you wrote a number in the box. That was all.”
Liberals have been agitating, for many years, for an end to the Reagan regime. Now, in Elizabeth Warren, the Democrats have a leading Presidential candidate who intends to unwind that era, and the question—the anxiety—is about how much might come undone. Natasha Sarin, Summers’s co-author, told me, “There’s another conceptual point that I find interesting. Bill Clinton, when he was running for President, said the world would be better if there were more millionaires. I was kind of stunned when I heard Bernie Sanders say that billionaires should not exist. There is something about that view that seems deeply alien to what many progressives, I think, believe. And, economically, I worry, it is deeply inefficient.” Zucman, by contrast, said at the Brookings conference that Piketty’s next book, due out next spring, would advocate a wealth tax of ninety per cent for billionaires. “Really,” Zucman told me, “you could abolish billionaires if you wanted to.”
From Zucman’s office window in Berkeley, it is possible to see clear across the bay to San Francisco, where the escalating forces of inequality had sent housing prices sky-high and pushed working-class people to the periphery of urban life, as they had in Paris. The formative political event in Zucman’s life was the 2002 French Presidential election, when he was fifteen, in which the nationalist Jean-Marie Le Pen won nearly five million votes in the first round, making it into the runoff, in part because of the sense that all of the gains of society were being hoarded by élites.
“You know,” Zucman said, “when you have the fall of the U.S.S.R., the fall of the Berlin Wall, some people say it’s the triumph of the free-market economy, the end of history, you won’t do better than that. And, especially now, in a globalized, integrated world, there’s no viable progressive platform that’s possible. And the left became discouraged, as it does—you know, ‘This is all a messy failure. It’s game over,’ ” Zucman said. “And now, thirty years later, people are realizing that there are all kinds of contradictions in the way our economies work, and we can do better.” The United States is only four per cent of the global population, he went on, but much of the rest of the world had remade itself in our image thirty years ago, and—if a progressive administration in Washington could implement a wealth tax, and strengthen international coöperation for higher corporate tax rates against tax evasion and offshore havens—maybe it would do so again. “You could change the U.S., but you could also change the world,” Zucman said. “Actually, you could be much more radical.”
Ahead of a major address in New York City, the Democratic hopeful is wrapping her campaign in an anticorruption pitch to Democratic primary voters
Sen. Elizabeth Warren is proposing a federal ban on all fundraising activities hosted by lobbyists as part of a new, broad set of anticorruption proposals, adding weight to a theme that has underpinned her White House bid.
The plan, outlined Monday morning on the blog site Medium, builds on anticorruption legislation Ms. Warren announced last year. It adds the new lobbying prohibitions, as well as a ban to prevent senior executive branch officials and members of Congress from serving on for-profit boards—whether or not they receive compensation from such positions. Ms. Warren, a Massachusetts Democrat, unveiled the proposal ahead of one of the splashiest events of her presidential campaign: an evening speech at New York City’s Washington Square Park.
The ideas are unlikely to become law while Republicans control the Senate and the White House. GOP lawmakers have generally lined up against similar proposals, citing constitutional concerns.
Typically, new restrictions on registered lobbyists lead to more Washington operatives deciding not to register, instead referring to themselves as consultants or strategic advisers. Ms. Warren says her plan would close that workaround by expanding the definition of lobbyist to include “all individuals paid to influence government.”
Such appeals to the idea that Washington is corrupt could pay off at the ballot box in 2020. In a WSJ/NBC News poll conducted last fall ahead of the midterm elections, 77% of all respondents said reducing the influence of special interests and corruption in Washington ranked as either the most important or a very important factor in deciding which candidate should get their vote. The only issue that ranked higher was the economy. Many Democrats who won House seats in 2018 campaigned on decreasing the influence of money in politics.
“Look closely, and you’ll see—on issue after issue, widely popular policies are stymied because giant corporations and billionaires who don’t want to pay taxes or follow any rules use their money and influence to stand in the way of big, structural change,” Ms. Warren wrote Monday.
Ms. Warren is also pushing to alter the definition of a “thing of value” in campaign finance laws to include tangible benefits made for campaign purposes, in what appeared to be a nod to President Trump.
The Wall Street Journal reported in November 2018 that Mr. Trump intervened to suppress stories about alleged sexual encounters with women, including the former Playboy model Karen McDougal and the former adult-film star known professionally as Stormy Daniels, citing interviews with three dozen people, court papers, corporate records and other documents. The president’s former personal attorney, Michael Cohen, told a federal judge that Mr. Trump had directed him during the 2016 campaign to buy the silence of two women who said they had affairs with Mr. Trump.
Mr. Cohen pleaded guilty in August 2018 to eight criminal charges, including campaign-finance violations. Mr. Trump has denied the encounters.
Ms. Warren is additionally proposing making it harder for corporations to seal settlements of product liability litigation, something Democrats have called for in the past, notably in 2014 following a faulty ignition switch installed on 2.6 million General Motors vehicles.
The problem, Democrats say, is that capital gains are taxed only when gains are realized through a sale and become income. An investor who buys $10 million in stock that pays no dividend and watches it grow to $50 million doesn’t pay income tax on that appreciation unless the stock is sold.
If that investor dies before selling, the unrealized gains get wiped out, for income-tax purposes. The heirs treat the assets’ cost basis as $50 million, not $10 million; they face no income tax on the $40 million of capital gains if they sell, although an estate tax may be due. This long-standing elimination of unrealized gains at death, for tax purposes, is called “stepped-up basis.”
It means the optimal tax strategy for the very rich, fine-tuned and promoted by the wealth-planning industry, is straightforward: Hold assets until death, borrow against them for living expenses and barely pay income taxes.
Democrats are attacking the foundations of that strategy. They talked for years about raising taxes on high-income investors, citing Warren Buffett ’s claim of paying a lower tax rate than his secretary. They’ve succeeded in raising the top capital gains rate from 15% under President George W. Bush to 20%, plus the 3.8% tax on investment income added to fund the Affordable Care Act. The top ordinary-income rate is 37%.
Just raising capital-gains tax rates further wouldn’t require the likes of Mr. Buffett to report more of their growing wealth on their returns, make them more willing to sell assets or raise much revenue. In fact, if the capital-gains rate went above 28.5% without other changes, investors would delay so many sales that federal revenue would drop, according to the Tax Policy Center, a research group.
Republicans see the same money accumulating and want to deploy it by not taxing it. Their goal, rather than generating money for expanded government programs, is to incentivize the private holders of capital to realize the gains and spur economic growth. The 2017 tax law created opportunity zones, which offer deferral and rate discounts for reinvesting capital gains in low-income areas. GOP lawmakers are pushing the Trump administration to consider the idea of indexing capital gains to inflation, reducing taxes on sales of long-held appreciated assets.
Still, some conservatives are moving closer to Democratic positions. In June, the Peterson Foundation, which favors budget-deficit reduction, invited plans from others, and three conservative groups proposed limiting or repealing stepped-up basis.
The Manhattan Institute’s Brian Riedl said it was the sort of concession conservatives would be willing to make “in exchange for tax reform or a grand deal” to curb entitlement spending.
In campaigns, Congress and academia, Democrats are shaping tax plans for 2021, when they hope to have narrow majorities. There are three main options.
The Biden Plan
President Obama left office with a list of ideas for taxing the rich that might have raised nearly $1 trillion over a decade. The most important was taxing capital gains at death.
The idea was too radical for a serious look from Congress at the time. Now, to a Democratic base that has moved left, it looks almost moderate.
Rethinking Capital Gains Taxation
Democrats are looking at major changes to the way capital gains taxation works. The effects of their tax proposals would depend on each taxpayer’s circumstances and on market performance.
Net worth above $50 million subject to a 2% annual tax, plus a 1% tax on net worth above $1 billion.
Assets can appreciate without capital gains taxes and heirs pay taxes only on gains in value after the original owner’s death.
Death would be considered a realization event, triggering capital gains taxes on appreciated assets, paid at ordinary income tax rates.
Each year, investors would pay income taxes on the gain in their assets. This is called a mark-to-market system.
Example one: Asset value begins at $40 million, 5% growth until person dies in year 25
Total taxes taken under law/plans:
Example two: Asset value begins at $200 million, 7% growth until year 12, person dies in year 25
Total taxes taken under law/plans:
Notes: Assumptions include one asset with annual taxes coming out of that asset’s value. Assumptions also include 40% tax rate for Wyden plan, though he hasn’t detailed a specific rate. All totals in nominal dollars. Estimates don’t include estate taxes.
Sources: Campaign plans; WSJ analysis; Tax Foundation review
Former Vice President Joe Biden, the candidate most prominently picking up where Mr. Obama left off, has proposed repealing stepped-up basis. Taxing unrealized gains at death could let Congress raise the capital gains rate to 50% before revenue from it would start to drop, according to the Tax Policy Center, because investors would no longer delay sales in hopes of a zero tax bill when they die.
And indeed, Mr. Biden has proposed doubling the income-tax rate to 40% on capital gains for taxpayers with incomes of $1 million or more.
But for Democrats, repealing stepped-up basis has drawbacks. Much of the money wouldn’t come in for years, until people died. The Treasury Department estimated a plan Mr. Obama put out in 2016 would generate $235 billion over a decade, less than 10% of what advisers to Sen. Warren’s campaign say her tax plan would raise.
That lag raises another risk. Wealthy taxpayers would have incentives to get Congress to reverse the tax before their heirs face it.
Mr. Obama’s administration never seriously explored a wealth tax or a tax on accrued but unrealized gains, said Lily Batchelder, who helped devise his policies.
“If someone’s goal is to raise trillions of dollars from the very wealthy, then it becomes necessary to think about these more ambitious proposals,” she said.
The Wyden Plan
Instead of attacking favorable treatment of inherited assets, Mr. Wyden goes after the other main principle of capital-gains taxation—that gains must be realized before taxes are imposed.
The Oregon senator is designing a “mark-to-market” system. Annual increases in the value of people’s assets would be taxed as income, even if the assets aren’t sold. Someone who owned stock that was worth $400 million on Jan. 1 but $500 million on Dec. 31 would add $100 million to income on his or her tax return.
The tax would diminish the case for a preferential capital-gains rate, since people couldn’t get any benefit from deferring asset sales. Mr. Wyden would raise the rate to ordinary-income levels. Presidential candidate Julián Castro also just endorsed a mark-to-market system.
For the government, money would start flowing in immediately. The tax would hit every year, not just when an asset-holder died. Mr. Wyden would apply this regime to just the top 0.3% of taxpayers, said spokeswoman Ashley Schapitl. Mr. Castro’s tax would apply to the top 0.1%.
There are serious challenges. Revenue could be volatile as markets rise and fall. Also, the IRS would determine asset increases annually, requiring baseline values and ways to measure change. That’s easy for stocks and bonds but far more complicated for private businesses or artwork.
The rules would have to address how to treat assets that lose instead of gain value in a year, and how taxpayers would raise cash to pay taxes on assets they didn’t sell. Under Mr. Castro’s proposal, losses could be used to offset other taxes or carried forward to future years.
Mr. Wyden would include exemptions for primary residences and 401(k) plans. For assets that aren’t publicly traded, Mr. Castro would impose taxes only upon a sale, plus a charge applied to limit the benefits of tax deferral.
“We’re obviously going to spend a lot of time working this through because when you’re talking about an issue this important, this substantial, it’s important to get it right,” Mr. Wyden said.
The Warren Plan
The most ambitious plan comes from Sen. Warren of Massachusetts, whose annual wealth tax would fund spending proposals such as universal child care and student-loan forgiveness.
The ultra-rich would pay whether they make money or not, whether they sell assets or not and whether their assets are growing or shrinking.
Ms. Warren, who draws cheers at campaign events when she mentions the tax, would impose a 2% tax each year on individuals’ assets above $50 million and a further 1% on assets above $1 billion. Fellow candidate Beto O’Rourke has also backed a wealth tax, and it is one of Vermont Sen. Bernie Sanders ’ options for financing Medicare-for-All.
Ms. Warren’s plan appeals to some Democrats because it would raise a lot of money from a tiny number of people. According to economists working with her campaign, it would generate $2.75 trillion over a decade from 75,000 households. That would be roughly a 6% boost in federal revenue from under 0.1% of households.
For Democrats, the Warren plan has advantages: Money would come only from the very wealthiest. The IRS could focus enforcement on very few people. Revenue would come quickly.
“Look at Mark Zuckerberg, ” said Gabriel Zucman, an economist at the University of California, Berkeley, who advised Ms. Warren, speaking of the Facebook Inc. founder. “Are you going to wait 50 years before you start taxing him through the estate tax?”
In the real world, a wealth tax would emerge from Congress riddled with gaps that the tax-planning industry would exploit, said Jason Oh, a law professor at the University of California, Los Angeles. For example, if private foundations were exempted, the wealthy might shift assets into them.
“We’ve never seen in the history of taxation a pristine tax of any form,” Mr. Oh said. “People who want to pursue a wealth tax for the revenue may be a little disappointed when we see the estimates roll in.”
European countries tried—and largely abandoned—wealth taxes. They struggled because rich people could switch countries and because some assets were exempt. Mr. Zucman said Ms. Warren’s tax would escape the latter problem by hitting every kind of asset, from artwork to stock to privately held businesses to real estate.
While he and fellow economist Emmanuel Saez assume 15% of the tax owed would be avoided, former Treasury Secretary Larry Summers and University of Pennsylvania law professor Natasha Sarin wrote a paper estimating the plan would raise less than half what Mr. Zucman projects, based on how much wealth escapes the estate tax.
A paper by economists Matthew Smith of the Treasury Department, Eric Zwick of the University of Chicago and Owen Zidar of Princeton University contends top-end wealth is overstated. Acccording to their preliminary estimate, the top 0.1% have 15% of national wealth, instead of the 20% estimated by Mr. Zucman. Their findings imply that Ms. Warren’s tax might raise about half of what’s promised.
For an investment yielding a steady 1.5% return, a 2% wealth levy would be equivalent to an income-tax rate above 100% and cause the asset to shrink. That leads to the criticism that wealth taxes could push people to seek higher returns, possibly discouraging productive investment and adding risk to the financial system.
“You hear 1%, 2%, doesn’t sound that much. Paying 1%, 2% on an asset you have every single year, that can add up,” said Ben Ritz of the Progressive Policy Institute, a centrist Democratic-affiliated think tank. “You’re basically having the asset shed money over time.”
To audit 30% of wealthy taxpayers, as Mr. Zucman recommends, would involve tens of thousands of complex investigations, a challenge even if the IRS were beefed up as Ms. Warren proposes. The agency already struggles with similar calculations for estate taxes, engaging in long battles over valuing such things as fractional shares of family businesses. Under the wealth tax, those once-per-lifetime audits would become annual affairs.
The wealth tax also has an extra asterisk: it would be challenged as unconstitutional.
The Constitution says any direct tax must be structured so each state contributes a share of it equal to the state’s share of the population. A state such as Connecticut has far more multimillionaires per capita than many others, so its share of the wealth tax would far exceed its share of the U.S. population. How Ms. Warren’s wealth tax might be categorized or affected is an unsettled area of law relying on century-old Supreme Court precedents.
Still, the wealth tax polls well, and Democratic candidates are eager to draw a contrast with President Trump, a tax-cutting billionaire.
Republicans will push back. Rep. Tom Reed (R., N.Y.) says tax increases aimed at the top would reach the middle class. “It easily goes down the slippery slope,” he said. “If it’s the 1%, it’s the top 20%.” he said.