J.D. Tuccille: Wealth-hating economists leverage credentials for billionaires tax

If California’s proposed wealth tax is defeated next week — polling now finds Prop. 40 underwater with voters — it will represent less a failure of economic arguments than of political activism given academic gloss. While the allegedly one-time five per cent tax on the assets of billionaires is based on the work of prominent economists Gabriel Zucman and Emmanuel Saez, the two University of California-Berkeley professors seem too willing to massage their research until it gives the results they seek. And what they ultimately want isn’t a one-time tax on the rich, but heavy ongoing taxation to eliminate success.

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According to the California Secretary of State’s office, the much debated Prop. 40 “(i)mposes five per cent tax on certain taxpayers with assets over $1 billion” with the “revenue primarily for health care.” If passed, assets would be assessed at their value as of Dec. 31, 2026, for all individuals residing in the state on Jan. 1 of the same year — that is, 11 months before the tax’s potential passage. The tax would be payable in five annual installments “with each subsequent annual installment payment also being subject to an annual nondeductible deferral charge of 7.5 per cent of the remaining unpaid balance.”

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Advocates of the tax claim the measure “would raise about $100 billion over five years 2027-2031 (or $20 billion/year) from the 200 wealthiest Californian taxpayers.” Critics aren’t convinced. In a recent paper, economists Benjamin Jaros and Joshua Rauh point out that the tax’s threat is driving the wealthy to leave. “(P)ublicly confirmed departures already eliminated nearly 30 per cent of the wealth tax base before signatures were collected.” They believe the tax could collect $30 billion but that losses in income tax collection from those who left would make the wealth tax a net drain to the tune of — $38.9 billion.

Infuriated by the report, Zucman took to X to protest that “moving to another state doesn’t allow one to avoid the tax, since the tax would be owed by billionaires who lived in California at the beginning of 2026.” He added, “(t)here is no incentive to move to another state. One cannot avoid the tax by moving.”

But some high-wealth people have moved and continue to do so. Why? For starters, it’s not obvious that moving is pointless. Many experts, including Jared Walczak of the Tax Foundation, argue that “the retroactive residency date is fatally flawed under Supreme Court precedent barring retroactive imposition of a ‘wholly new tax.’” Legal challenges to the law enjoy a good chance of success.

Additionally, the measure removes the state constitution’s cap on taxes on intangible personal property and changes California’s tax environment. It may be a stalking horse for future taxes.

“Once that cap is lifted, future ballot initiatives and legislative action can build on the authority this amendment creates to impose additional wealth taxes at any rate, on any threshold,” warn Jaros and Rauh. “Thus, the Act establishes constitutional infrastructure for wealth taxation while presenting itself as a bounded, ‘one-time’ event.”

The exodus was predictable. People with means — even moderately so — tend to flee governments that covet their money. In 2024, summarizing a paper that examined state-level tax policies from 1900 to 2010, the University of California-Riverside noted, “the introduction of income tax in the post-World War II era led to out-migration by wealthy Americans” from states that imposed the tax.

Most likely, Zucman ignored legal pitfalls and history because they’re inconvenient to his mission.

“He has gone from a historical and quantitative analysis of inequalities to an activist approach. And he is now trapped by the public persona he has become. That makes scientific debate more difficult,” Antoine Levy, another University of California-Berkeley economist who has clashed with Zucman, told Le Monde in an otherwise sympathetic profile of the Prop. 40 booster.

Zucman’s flaws extend beyond ignoring historical evidence about people’s reactions to taxation.

On X, economic historian Phil Magness noted: “In 2019, California billionaire tax crusader Gabriel Zucman made an astonishing claim to the NY Times: billionaires pay a lower avg tax rate than poor people in the U.S. I noticed something fishy though: Zucman’s NYT chart did not match his own published data from a 2018 paper.”

Independent Institute research fellow Kristian Fors agrees, pointing out that the widely publicized work of Zucman and Saez forming the basis for the wealth tax claimed, “the overall tax rate for the top 400 richest households in the nation was 23 per cent.” But this contradicts the duo’s earlier research, which “estimated that the top one per cent paid an overall tax rate of approximately 36 per cent” and put the tax rate for the very highest earners at 41 per cent.

The lower estimated tax rate was the result of unusual accounting. Fors emphasized that conventional analysis accepts that corporate taxes affect shareholders, workers, and consumers as the tax gets passed on. That produces the earlier estimate of a 41 per cent tax rate for the wealthiest. To get the 23 per cent figure, Zucman and Saez used a non-standard analysis and didn’t submit it to peer-review.

Playing fast and loose with economic research methods is a risky move if you’re trying to promote a one-time tax in one American state. But it might look worthwhile for activists trying to change the world.

Interviewed by the University of California-Berkeley in January, Zucman advocated an annual worldwide wealth tax of two per cent on the assets of the rich — as a starting point. “I hope it would encourage countries to create more progressive wealth taxes,” he boasted. “I view the two per cent minimum wealth tax as an irreducible floor, but certainly not a ceiling.”

Zucman makes bold claims about the money wealth taxes can raise. But it’s not clear targets will remain wealthy enough to be taxed unless the threshold is reduced. These taxes go after unrealized wealth — shares in companies, for example — not just liquid cash. Those assets may have to be sold to pay tax bills.

In a 2019 assessment of a wealth tax proposed by Vermont’s socialist Sen. Bernie Sanders, Zucman and Saez happily concluded, “the Sanders wealth tax would reduce the wealth of the typical billionaire in half after 15 years relative to a situation with no wealth tax.” Wealth would continue to erode from there.

Gabriel Zucman and his colleagues certainly behave more like activists than economists as they leverage their academic credentials to promote their preferred tax policies. As they do so they don’t really advocate for taxing wealth so much as for ending its existence.

National Post

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