Arthur Laffer, father of trickle-down or supply-side economics, and Emmanuel Saez, one of the world’s leading inequality scholars, debated whether California’s billionaires should pay a one-time 5% tax on their net worth, an issue on the state ballot this November.
Tuesday’s event, held in a sold-out campus auditorium, was hosted by the Berkeley Political Union. Mann Aggarwal founded the organization, which aims to promote the free exchange of ideas, after Laffer told Aggarwal he was interested in debating Saez at UC Berkeley.
The event was supported by the Young America’s Foundation, an organization serving conservative students, and the James M. and Cathleen D. Stone Center on Wealth and Income Inequality.
Saez, a professor of economics at UC Berkeley and a scholar on inequality and progressive taxes, promoted the tax as an “emergency” replacement for cuts to Medicaid.
He argued that billionaires are largely able to avoid taxes on much of their wealth and that this tax is particularly important in a time of increased wealth inequality.
“The 5% contribution we will be asking of billionaires is big in terms of taxes, but it’s very small relative to the enormous gains of billionaires,” Saez said.
Laffer, a former member of the President’s Economic Policy Advisory Board established by former President Ronald Reagan was awarded the Presidential Medal of Freedom by President Donald Trump. He advocated against the billionaire tax, which he says will not bring in the $100 billion that advocates claim.
He argued that the tax makes billionaires “victims” and drives their business out of the state. Laffer listed examples of states that implemented lower tax policies, which he said had “grown enormously.”
“The right answer is not to add a new dysfunctional wealth tax,” Laffer said. “The right answer is to fix the taxes that are there.”
Laffer instead advocated for taxation of all increases in unrealized capital gains, or the profits made from selling assets like property or stocks. He also supported removing tax deductions for non-profit organizations.
Saez agreed with Laffer about taxing all profits rather than just income, and said the billionaire tax is an “imperfect” start, “given the inequality situation we are facing and the incredible funding needs we have.”
Saez pointed out that due to Proposition 13, which was influenced by Laffer’s ideas, legislative changes to tax policy require a supermajority. Therefore, changes in tax policy are often made through ballot initiatives, making them difficult to renegotiate.
Beyond Laffer’s economic concerns that the tax would ultimately decrease revenue by driving large earners out of the state, he also critiqued the tax for its targeting of California’s billionaires.
“This type of enforcement — mob mentality, going after a limited number of people — is just plain wrong, and it’s not the way equity and justice are served in this country,” Laffer said.
Laffer and Saez concluded that they agreed on a lot — except the solution.