The billionaire tax, explained

Talking to economist Gabriel Zucman about Democrats' new plan to curb the biggest fortunes while investing in the commons

In recent days, a strange thing happened in Washington. Corporate Democrats who have been resisting tax increases on corporations and the rich proposed by President Biden apparently began gravitating to a seemingly more audacious idea: a so-called billionaire tax on the unrealized capital gains of several hundred American plutocrats.

From a distance, this can seem like someone at the bar turning down a beer because they don’t drink, and then asking for a shot. But, in fact, politically and economically, this turns makes a great deal of sense. In a country where millions of people are under the illusion of being millionaires-in-waiting, tax increases on the broad class of the rich scare many thousandaires away. But a wealth tax concentrated on fewer than 1,000 plutocrats has wide appeal, and you can be pretty sure it’s not aimed at you.

Senator Ron Wyden is expected to unveil the latest version of his billionaire tax in the coming days. And so I reached out to one of the leading authorities on taxing the rich to get his analysis of what is sure to be a major topic of discussion in the coming days.

Gabriel Zucman is an economist who teaches at Berkeley and has been, along with his collaborators Thomas Piketty and Emmanuel Saez, one of the most influential voices arguing for greater taxation of the super-rich as well as an advisor to political leaders working to translate that vision into policy. He is the author of “The Hidden Wealth of Nations: The Scourge of Tax Havens.”

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“A BFD it would be”: a conversation with Gabriel Zucman

ANAND: There have been many wealth tax proposals floating around in recent years. Explain to people what this new one, introduced by Senator Ron Wyden, entails, and how it differs from the others.

GABRIEL: The main specificity of this new tax is that it would only apply to billionaires, fewer than 1,000 taxpayers. From that perspective, it’s the most progressive tax possible, targeted at the tippy top. It’s also technically different from a wealth tax in that it does not tax wealth itself, but the increase in wealth — what economists call unrealized capital gains. Billionaires own $5 trillion in wealth today, of which about 60 percent (roughly $3 trillion) corresponds to unrealized gains. So you can think of this tax as a big one-time wealth tax on 60 percent on the wealth of billionaires, plus an ongoing annual tax on their future gains.

ANAND: The biggest objection billionaires and their acolytes raise is that taxing unrealized capital gains means people may have to liquidate paper assets to pay their taxes.

Others counter that this is what regular people do all the time when paying property taxes on their primary investment, their home. And that if you can use a paper asset as collateral to borrow against, surely you can liquidate some of it to pay taxes. Does the objection from illiquidity carry any weight?