The survival of American democracy depends on taxing billionaires
The Guardian reports:
By Eduardo Porter
BLUF: It is essential not just to fund the public goods the nation needs, it is indispensable to restore a sense of fairness.
Money doesn’t buy happiness, we’re told. Even some economists agree. The Nobel prize-winning economists Daniel Kahneman and Angus Deaton once proposed that rising income increased people’s emotional wellbeing only up to a ceiling of about $115,000 in today’s money.
They probably hadn’t met many billionaires. The ultra-rich may not pursue happiness in the joyful sense of the word. But they will try every trick in the book to hang on to their stash and woe betide the tax authority that tries to lay a finger on their treasure.
And this poses one of the most intractable challenges not only to the solvency of the American state, but to the survival of American democracy.
From the technological Olympus of Silicon Valley to the urban canyons of Wall Street, a narrow club of vastly wealthy plutocrats sits on a ballooning share of the nation’s resources. One per cent of Americans at the apex of the economy are hoarding over 31% of the nation’s total wealth, a cool $55tn in net worth.
Getting them to share with the rest of society, to fund redistribution or pay for public goods, is proving pretty much impossible. Their ability to move resources around, hide profit across jurisdictions, and minimize income to hoard wealth until they die appears to put them beyond the reach of taxation.
One recent research paper found that the country’s richest 384 oligarchs paid only 24% of their economic income in 2025, compared with 30% for the average taxpayer. And not all of them are getting top-notch tax advice. Reporting by ProPublica revealed that some of the richest Americans – like Elon Musk, Jeff Bezos, Warren Buffett and Michael Bloomberg – live largely tax free.
California is experimenting with a budgetary Hail Mary pass: In November, Californians will be called to vote on Proposition 40, a one-time 5% tax on the wealth of billionaires residing in the state on 1 January of this year. If the plutocracy’s income is off limits, the thinking goes, best to target its gargantuan assets.
California’s gambit is “the first-ever tax on billionaire wealth enacted anywhere in the world” – according to an open letter endorsing the move by six Nobel prize-winning economists on the left side of the political spectrum. “It will kickstart a movement to tax ultra-high-net-worth individuals in other states – and eventually at the federal level and in other countries,” they raved. The vote “may well come to be seen as a turning point in the battle between democracy and oligarchy”.
Moreover, Prop 40 could raise real money. As of early October, 260 billionaires lived in the state, according to the Forbes billionaires’ list, amassing nearly $2.5tn in wealth. Based on these numbers, the 5% tax would raise some $110bn, much of which would go to replace Medicaid funding nixed in Trump’s One Big Beautiful Bill Act last year.
Still, the move is proving controversial even among left-leaning economists and politicians. Governor Gavin Newsom, who is virtually certain to run for the Democratic nomination ahead of the 2028 presidential election, is opposed. So is Xavier Becerra, the Democrat running to succeed him as governor. They fear that such a move will spark a flight of the oligarchs to lower-tax jurisdictions.
The Nobelists note that the California’s proposed billionaire tax was sneaked in to prevent billionaires from fleeing to avoid it: “Some affected taxpayers may have tried to leave between the time they learned about the proposed ballot initiative – in late November 2025 – and January 1st of 2026,” they wrote. “But the window was so short that it is unlikely any significant number of billionaires successfully cut ties with the Golden State in such a short period of time.”
In fact, between January and October the number of billionaires living in California grew by 20. Elon Musk may believe that welfare recipients are the “parasite class” and empathy is “the fundamental weakness of western civilization”. But perhaps California’s billionaires feel enough empathy for less fortunate humans to part with a paltry $110bn, especially since their wealth has grown by a cool $400bn so far this year.
Not all billionaires move to avoid taxes. Trump’s 2017 Tax Cuts and Jobs Act, which capped the state and local tax deduction, was expected to prompt the rich to flee high-tax blue states in droves, as they could no longer deduct their state and local tax payments on their federal tax returns. But a study by a Cornell sociologist and an economist at the treasury department found almost no impact on the migration rates of the affluent, at least in the first year following the change.
Indeed, the rich in New York City are hit by a top city income tax rate of 3.9% on top of a 10.9% state tax, compared with zero in Miami. Still, there are 154 billionaires in New York state, according to a report by Oxfam. Nine of the 10 richest live in the city. The only state with more billionaires than New York is, wait, high-tax California.
Still, Newsom and Becerra have a point. California’s richest billionaires have gone feral over Prop 40. Google’s Sergey Brin has helped coordinate about $200m to oppose it and promote two countervailing propositions, 41 and 42 that, if passed, would emasculate the tax. One would bar retroactive taxes – putting wealth accumulated in the past off limits – and forbid new taxes on financial assets or other personal property.
The opposition is gaining traction. A poll in September found that Prop 40 falls just short of majority approval. Just in case, the fast money has tried to flee the state, to make it out before deadline. In the run-up to Christmas of 2025 Brin and the Google co-founder Larry Page moved many of their business interests out of California. They also bought homes out of state. Travis Kalanick, former CEO of Uber, followed Musk to Texas. Paypal and Palantir mogul Peter Thiel moved his residence to Miami last year.
While some of the more optimistic analyses assume that avoidance tactics by California billionaires will reduce the taxable pot of wealth by only about 10%, others are less sanguine. Even if it passes, the tax will be taken to court, including on grounds that retroactive taxation violates due process, and may not survive litigation. Some assets – real estate, notably – will not be taxed. Foreign billionaires may wiggle out under double taxation treaties. And more billionaires will leave, assuming that though it was billed as a one-time affair, the new tax will become permanent. This will hit future income tax revenues.
Altogether, economists from Stanford University concluded that the new tax would raise only around $30bn, while the flow of lost income tax revenue would cost state coffers nearly $39bn, in net present value. The estimate fits with results from studies of attempts to avoid wealth taxes in Swiss cantons. It also checks with behavioral responses of the rich to other forms of taxation. For instance, Enrico Moretti, an economist at the University of California Berkeley, and Daniel Wilson of the Federal Reserve Bank of San Francisco, found the location of the very rich is highly sensitive to estate taxes.
These should be the most American taxes of them all, a good fit for a democratic nation that conceives itself as a meritocracy; a tool to prevent the emergence of a hereditary aristocracy passing economic and political power down the generations. Still, the rich don’t much care for them.
By Eduardo Porter
BLUF: It is essential not just to fund the public goods the nation needs, it is indispensable to restore a sense of fairness.
Money doesn’t buy happiness, we’re told. Even some economists agree. The Nobel prize-winning economists Daniel Kahneman and Angus Deaton once proposed that rising income increased people’s emotional wellbeing only up to a ceiling of about $115,000 in today’s money.
They probably hadn’t met many billionaires. The ultra-rich may not pursue happiness in the joyful sense of the word. But they will try every trick in the book to hang on to their stash and woe betide the tax authority that tries to lay a finger on their treasure.
And this poses one of the most intractable challenges not only to the solvency of the American state, but to the survival of American democracy.
From the technological Olympus of Silicon Valley to the urban canyons of Wall Street, a narrow club of vastly wealthy plutocrats sits on a ballooning share of the nation’s resources. One per cent of Americans at the apex of the economy are hoarding over 31% of the nation’s total wealth, a cool $55tn in net worth.
Getting them to share with the rest of society, to fund redistribution or pay for public goods, is proving pretty much impossible. Their ability to move resources around, hide profit across jurisdictions, and minimize income to hoard wealth until they die appears to put them beyond the reach of taxation.
One recent research paper found that the country’s richest 384 oligarchs paid only 24% of their economic income in 2025, compared with 30% for the average taxpayer. And not all of them are getting top-notch tax advice. Reporting by ProPublica revealed that some of the richest Americans – like Elon Musk, Jeff Bezos, Warren Buffett and Michael Bloomberg – live largely tax free.
California is experimenting with a budgetary Hail Mary pass: In November, Californians will be called to vote on Proposition 40, a one-time 5% tax on the wealth of billionaires residing in the state on 1 January of this year. If the plutocracy’s income is off limits, the thinking goes, best to target its gargantuan assets.
California’s gambit is “the first-ever tax on billionaire wealth enacted anywhere in the world” – according to an open letter endorsing the move by six Nobel prize-winning economists on the left side of the political spectrum. “It will kickstart a movement to tax ultra-high-net-worth individuals in other states – and eventually at the federal level and in other countries,” they raved. The vote “may well come to be seen as a turning point in the battle between democracy and oligarchy”.
Moreover, Prop 40 could raise real money. As of early October, 260 billionaires lived in the state, according to the Forbes billionaires’ list, amassing nearly $2.5tn in wealth. Based on these numbers, the 5% tax would raise some $110bn, much of which would go to replace Medicaid funding nixed in Trump’s One Big Beautiful Bill Act last year.
Still, the move is proving controversial even among left-leaning economists and politicians. Governor Gavin Newsom, who is virtually certain to run for the Democratic nomination ahead of the 2028 presidential election, is opposed. So is Xavier Becerra, the Democrat running to succeed him as governor. They fear that such a move will spark a flight of the oligarchs to lower-tax jurisdictions.
The Nobelists note that the California’s proposed billionaire tax was sneaked in to prevent billionaires from fleeing to avoid it: “Some affected taxpayers may have tried to leave between the time they learned about the proposed ballot initiative – in late November 2025 – and January 1st of 2026,” they wrote. “But the window was so short that it is unlikely any significant number of billionaires successfully cut ties with the Golden State in such a short period of time.”
In fact, between January and October the number of billionaires living in California grew by 20. Elon Musk may believe that welfare recipients are the “parasite class” and empathy is “the fundamental weakness of western civilization”. But perhaps California’s billionaires feel enough empathy for less fortunate humans to part with a paltry $110bn, especially since their wealth has grown by a cool $400bn so far this year.
Not all billionaires move to avoid taxes. Trump’s 2017 Tax Cuts and Jobs Act, which capped the state and local tax deduction, was expected to prompt the rich to flee high-tax blue states in droves, as they could no longer deduct their state and local tax payments on their federal tax returns. But a study by a Cornell sociologist and an economist at the treasury department found almost no impact on the migration rates of the affluent, at least in the first year following the change.
Indeed, the rich in New York City are hit by a top city income tax rate of 3.9% on top of a 10.9% state tax, compared with zero in Miami. Still, there are 154 billionaires in New York state, according to a report by Oxfam. Nine of the 10 richest live in the city. The only state with more billionaires than New York is, wait, high-tax California.
Still, Newsom and Becerra have a point. California’s richest billionaires have gone feral over Prop 40. Google’s Sergey Brin has helped coordinate about $200m to oppose it and promote two countervailing propositions, 41 and 42 that, if passed, would emasculate the tax. One would bar retroactive taxes – putting wealth accumulated in the past off limits – and forbid new taxes on financial assets or other personal property.
The opposition is gaining traction. A poll in September found that Prop 40 falls just short of majority approval. Just in case, the fast money has tried to flee the state, to make it out before deadline. In the run-up to Christmas of 2025 Brin and the Google co-founder Larry Page moved many of their business interests out of California. They also bought homes out of state. Travis Kalanick, former CEO of Uber, followed Musk to Texas. Paypal and Palantir mogul Peter Thiel moved his residence to Miami last year.
While some of the more optimistic analyses assume that avoidance tactics by California billionaires will reduce the taxable pot of wealth by only about 10%, others are less sanguine. Even if it passes, the tax will be taken to court, including on grounds that retroactive taxation violates due process, and may not survive litigation. Some assets – real estate, notably – will not be taxed. Foreign billionaires may wiggle out under double taxation treaties. And more billionaires will leave, assuming that though it was billed as a one-time affair, the new tax will become permanent. This will hit future income tax revenues.
Altogether, economists from Stanford University concluded that the new tax would raise only around $30bn, while the flow of lost income tax revenue would cost state coffers nearly $39bn, in net present value. The estimate fits with results from studies of attempts to avoid wealth taxes in Swiss cantons. It also checks with behavioral responses of the rich to other forms of taxation. For instance, Enrico Moretti, an economist at the University of California Berkeley, and Daniel Wilson of the Federal Reserve Bank of San Francisco, found the location of the very rich is highly sensitive to estate taxes.
These should be the most American taxes of them all, a good fit for a democratic nation that conceives itself as a meritocracy; a tool to prevent the emergence of a hereditary aristocracy passing economic and political power down the generations. Still, the rich don’t much care for them.
