SAN FRANCISCO — A tall, 250-page stack of papers rises prominently in front of his office window. Sitting on the 6th floor of a large building with a breathtaking view of the San Francisco Bay, Gabriel Zucman has just received the proofs of his next publication, which will be released in the United States on Oct. 15.
Throughout the work, the French economist defends a longstanding conviction: that U.S. fiscal policy, along with that of other Western countries, contributed to the huge rise in inequality that led, ultimately, to the election of Donald Trump. And although the book is titled The Triumph of Injustice, the baby-faced, 30-something maintains a positive outlook.
On the other side of the office, Emmanuel Saez, his co-author and mentor, is putting the finishing touches on the website that will accompany the book and propose various political solutions. “We wanted users to be able to make simulations based on the proposals of American presidential candidates,” explains Saez, head of the Center for Equitable Growth at the nearby University of California Berkeley.
Elizabeth Warren, one of the top Democratic presidential contenders, called on the duo to help develop her plan for a tax on millionaires and multinational companies. The key proposal, presented in January, is a 2% tax on assets over $50 million and 3% over $1 billion. Together they could generate $2.7 trillion over 10 years, funds that could then be used to alleviate student debt, provide free preschool, and extend health insurance, among other things.
Three years earlier, the two Frenchies helped influence the fiery discourse of Bernie Sanders. “Our graphic depicting the wealth concentration in the United States was prominently displayed on his website,” Zucman recalls.
The Vermont senator’s advisors are now working more directly with the duo. Together, they’re elaborating a proposed tax of 77% on real estate property of over $1 billion and envision a wealth tax with a base that’s “even bigger than Warren’s,” according to Saez. A sign of the changing times, George Soros and Abigail Disney announced their support in June.
A few years ago the idea of a wealth tax was unimaginable in the United States, as Republicans and Democrats alike were wary of discouraging burgeoning businesses. Donald Trump’s election changed the game. Now, all Democratic candidates except for Joe Biden are leaning further to the left.
“Half of the American population, the poorest part, have been watching their revenue stagnate since 1980, before taxes and public transfers,” Zucman explains. “During this period, the top 20% of earners saw their incomes explode. Today, many people are tired of this unequal spiral and its oligarchy-like origins.”
There is a myopia with American tax history.
The economist could keep talking about inequality for hours. His wife, Claire Montialoux, is a professor specializing in racial inequality. Zucman says that inequality levels in the United States “are as high as in Vladimir Putin’s Russia.” He points to factors such as the rising cost of education and healthcare, the decline of trade unions, the low minimum wage and, most importantly for the two economists, an anti-tax ideology.
They hope their book will remind the public that the situation isn’t unchangeable. “There is a myopia with American tax history. Before Ronald Regan, the United States had the most progressive tax system in the world and inequalities were quite low,” Zucman points out. “The marginal income tax rate even rose to 90% after World War II.”
The economist sees himself as a child of the 2008 financial crisis. The same day the Lehman Brothers tanked, Zucman began an internship with the broker Exan. The situation fed his rejection of classic economics. “I found it too straight and out of touch with reality,” he says. “Right before the crisis, economists were telling us how the world was functioning perfectly!”
Zucman immersed himself in macroeconomics. His thesis, written under the guidance of the esteemed economist Thomas Piketty, showed that 8% of the world’s wealth was held offshore, meaning that $200 billion in potential tax revenues were lost every year. He adapted his work into a book, The Hidden Wealth of Nations, which sold 50,000 copies in 18 countries.
His success has put him at the top of the list of the new generation of economists less interested in theory and more keen to be useful, even if they’re sometimes accused of activism. Zucman, the child of two physicians, highlights that he’s never been part of any party and prefers to compare himself to a plumber or a doctor. “There are problems with the fiscal system, so how can we repair them in the best possible way?,” he says.
Warren’s proposal only affects 70,000 families, but they have gigantic fortunes.
Now, Zucman and Saez are embarking on an enormous undertaking: tracing the evolution of American assets over a century, a world first in academia. It’s a hard task because the American government has no data on household wealth. The two researchers will therefore start with capital revenue (dividends, interest, capital gains, etc.). Their method doesn’t rely on supercomputers or AI, but on voluminous Excel charts and long weekends spent in the office.
Although the Federal Reserve published figures close to theirs in 2017, the rehabilitation of a wealth tax is still controversial. While 12 countries had a wealth tax in 1990, today there are only three. France recently did away with its version, replacing it with a tax only on equity. Last year the OECD published a long report on the subject, concluding that wealth taxes aren’t the best tool to fight inequality, in terms of either efficiency or equity.
Zucman recognizes that this tax only brought 0.2 GDP points to France and Spain. Crossing his arms, he expounds on the reasons for their failure: Unwillingness to “modernize” them, thresholds that are too low, and a lack of consideration non-liquid assets creating difficult situations for certain owners. He also recognizes that tax competition in the EU complicates the job.
He’s convinced, nevertheless, that a wealth tax will work better in the United States. Paradoxically, the low redistributive tax policies of the last 40 years have an advantage: They’ve created such a concentration of wealth that it’s possible to obtain very high revenues from only a small number of households. “Warren’s proposal only affects 70,000 families, but they have gigantic fortunes,” he notes.
Many doubt the effectiveness of the wealth tax. Clinton’s former treasurer estimated that it would only bring 40% of Warren’s projection. Zucman counters this by highlighting the safeguards in Warren’s program, which doesn’t have any tax loopholes, involves tighter controls, an proposes an increase in the “exit tax” to dissuade Americans from giving up their citizenship.
The biggest problem, he says, is the “deceiving, defeatist mentality that the world will not change.”
