Weekend Listen: Can the US Actually Tax Billionaires?

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Stephanie Flanders** (0:16)
I'm Stephanie Flanders, Head of Government and Economics at Bloomberg. And this is Trumponomics, the podcast that looks at everything in the economic world of Donald Trump. This week, we thought it made sense to talk about how the US tax system is struggling to tax gazillionaires and whether any of the bright ideas being floated for extracting more from the mega-rich would actually work. It's not only the so-called class warriors who are worrying about wealth taxes these days. The International Monetary Fund held a war-gaming exercise a few months back with around fifty finance and technology experts. David Ramley wrote about it for Businessweek. It included folks from Google DeepMind and the RAND Corporation and the Federal Reserve. And they spent hours debating how AI could upend the global economy in various ways.
The AI doomsday scenario they were most concerned about, it turned out, was not killer robots, but a potentially civilisation-ending attack on the income tax base. The US government, like many, relies on income taxes for much of its revenues. So if AI destroys well-paying jobs, the theory goes, it could destroy a lot of those taxes.
Now, there's plenty of companies and big investors who would be raking it in in that scenario. The trouble for the tax base is that most of that money would be in the form of capital gains on stocks and other assets, which tend to be very lightly taxed. In fact, in the US, they're often not taxed at all.
A number of Bloomberg stories this week have highlighted new and even more efficient ways that the super-rich are finding to avoid capital gains, even as gasoline prices jump again and the high cost of living stays as the number one issue for most voters. So no wonder that we're hearing more and more proposals from progressive politicians for wealth taxes, both in Europe and the US. In California, a one-time billionaire, five percent tax is on the ballot in the midterm elections in November. That's got a lot of attention. There are others. Could any of them get passed? And even before we get to that, would any of them work? Joining me to discuss this, we have in our DC studio, Caitlin Reilly, who covers Congress for us with a focus on tax and fiscal policy. And I should say, although she's sitting in a special sound booth in Cavendall Hill, it is actually pretty noisy. Caitlin, thanks very much for joining us anyway. It is.

**Caitlin Reilly** (2:35)
Thank you for having me.

**Stephanie Flanders** (2:37)
And I'm happy to say coming back this week is Jason Furman, professor of economic policy at the Harvard Kennedy School and Harvard's Department of Economics. And he, of course, was chair of President Obama's Council of Economic Advisers, writes and thinks about pretty much everything this podcast is interested in. Jason, thanks for coming back.

**Jason Furman** (2:56)
Great to be back with you.

**Stephanie Flanders** (3:01)
Caitlin, just give us a quick summary of how live this issue is, of taxing the wealthy where you hang out on Capitol Hill.

**Caitlin Reilly** (3:09)
Well, it's increasingly front of mind for Democrats. Democrats are not currently in power in either the House, the Senate, or of course, the White House. And so right now, these ideas are more theoretical, but they featured heavily in the 2020 presidential primary on the Democrat side. And we would expect them to feature heavily again as we look forward to 2028 There are several competing sort of tax proposals on how to get at taxing the wealthy. Some of those are wealth taxes. Some of those would use other types of tax to get at that wealth that's not collected as wages. But we would expect that Democrats will continue to have this debate kind of between the progressive and more moderate flakes of the party about how to tax the wealthy. A large part of that is because when you want to create ambitious new social programs, you have to figure out ways to pay for them. And we're already reaching dizzying levels of debt. So how to pay for a Democratic agenda will be front of mind in the years ahead.

**Stephanie Flanders** (4:14)
I mentioned about the possible future erosion of the tax base due to AI and a reduction in the number of a certain kind of jobs. But the tax base has already been somewhat eroded, right? There is also just a concern that the system is getting worse and worse at taxing some of the new money coming on stream.

**Caitlin Reilly** (4:33)
Exactly. The tax system in the US focuses heavily on wages, and that's really not the way that the wealthy collect and expand their wealth. And the tax code has not been very good at getting at those types of holdings. And we've actually seen the taxes that do target wealth erode over time. The estate tax is a big piece of that. The corporate tax rate here is also lowered over time. And so we've seen the way that previous generations were able to impose heavier taxes on the wealthy erode here. And there's some interesting research by French economist Emmanuel Saez and Gabrielle Zuchman, who looked at the amount the very wealthy paid in tax going back to the 1950s.