If there is one thing Democratic politicians can agree on right now it’s this: Rich people should pay more in taxes.
New York Mayor Zohran Mamdani has made it a centerpiece of his agenda. Texas Senate candidate James Talarico is bringing it up on the stump. And Georgia Sen. Jon Ossoff’s riff on the “Epstein class” of rich guys staffing the Trump administration is one of his signature applause lines.
But only in California is a billionaire tax actually on the ballot.
This November, voters in the Golden State will decide whether to levy a first-of-its-kind, one-time tax on the roughly 250 billionaires who live in the state, equal to 5 percent of their total assets. Many of the state’s billionaires are furious — and a few have already moved away.
The tax is supported by labor unions and some populist lawmakers like Sen. Bernie Sanders (I-VT) and Rep. Ro Khanna (D-CA), but it’s less popular with moderate Democrats.
Some experts, like Cornell University sociology professor Cristobal Young, are leery too.
“It’s a one-time tax, but this is not a one-time problem,” Young, who also wrote the 2017 book The Myth of Millionaire Tax Flight: How Place Still Matters for the Rich, told Today, Explained co-host Sean Rameswaram. “So why are we talking about a one-time sort of Band-Aid over this?”
Sean spoke with Young about what Young’s research shows about whether the wealthy move away from higher taxes, why this tax proposal may be different, and the right way to tax the very rich.
Below is an excerpt of their conversation, edited for length and clarity. There’s much more in the full episode, so listen to Today, Explained wherever you get your podcasts, including Apple Podcasts, Pandora, and Spotify.
Are you open to taxing the billionaires?
Yeah, certainly. There’s a fundamental loophole in the tax system. Every paycheck, I’m paying taxes straight out of that, and so are all your listeners. But if you make your money from holding corporate stock that’s appreciating in value dramatically over time, you don’t pay any tax on that until you sell it. That leads to a situation where people are accumulating vast fortunes essentially without paying any tax on it at all. It’s a huge inequality in the tax system and it’s especially apparent at the very top. I think it’s just a question of what we are going to do about it.
I’ve been studying the policies currently in place. There are states today that have taxes on millionaire incomes and we have a really good sense of the impacts of that. They raise a lot of revenue, and they don’t have very much effect on migration. Maybe a few people move, but generally not. My research contribution to this is tracking where millionaires live before and after these tax increases. I found between no to very little tax migration in response.
One of the biggest arguments against this billionaire tax in California is that you’re going to chase all the billionaires away. Sergey Brin has already left, but you’re saying the research doesn’t show that effect?
That’s right. But the important point I want to make is that none of these previous tax proposals have suggested that a small number of people would get tax bills up to $10, $12, or $13 billion. We’ve been talking about significantly smaller tax policies.
I’ve always been cautious and clear about what the research has shown to date: Our experience with taxing millionaires at the state level has been very successful. Many states over the years have adopted it after watching their neighbors to see how it plays out. How it plays out is you get extra revenue and people aren’t really moving away.
But this tax proposal is a completely different tax instrument. Firstly, it’s a one-time tax, but this is not a one-time problem. This is an ongoing problem, year in and year out. Why are we talking about a one-time Band-Aid?
There are good proposals for an ongoing solution that wouldn’t be this large. For the people that are affected, this is going to be an unprecedented tax bill. I don’t want to say “poor them, they can’t pay it,” but we’re talking about enormous amounts of money.
I believe you have a different proposal on how to [institute a wealth tax], and it has to do with unrealized capital gains. Can you help people who don’t have unrealized capital gains understand what those are?
For sure. Say you hold stock in Google, and over the years, the value of that stock has appreciated enormously, such that you’re now one of the richest people in the world. But none of that was ever paid out as a paycheck. It’s essentially sitting in a capital account and therefore it doesn’t trigger a tax bill unless it gets sold. It rarely gets sold, so effectively it just goes untaxed, potentially forever.
In the meantime, it’s not like these folks are living in a monastery somewhere. They’re living like they’re the richest people in the world. They do this by borrowing against their assets. Borrowing doesn’t trigger a tax liability because borrowing is not income in the tax code.
There are existing proposals at the federal level, which have been worked out in great detail, like the Billionaires Income Tax Act. It’s not a tax on all billionaire wealth; it’s a tax on year-to-year increments in billionaire fortunes.
If you have $200 billion in Google stock and the next year it’s worth $220 billion, you owe taxes on the $20 billion, not the $220 billion. It’s just on the increment year-to-year and not everything that’s ever happened in the past. That switches it from being a wealth tax to being an income tax. A lot of things count as income, and increases in billionaire fortunes should be treated and taxed as income.
California’s billionaire wealth tax proposal is flawed in many ways, but it is raising a very important conversation about how we are going to address deep loopholes in our tax system. This is a conversation we need to be having.
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