Robert Reich and Berkeley economics professors talk to students about billionaire tax

When California voters head to the polls this November, they could be setting a new precedent for the rest of the country.

Proposition 40 — which proposes a one-time, 5% wealth tax on California residents with assets over $1 billion to fund healthcare programs, food assistance programs and public education — could make California the first to enact a state-level billionaire wealth tax in the U.S.

To discuss the wealth tax’s origins and potential impacts on global policy if it passes, UC Public Policy Professor Emeritus Robert Reich and Berkeley Economics professors Emmanuel Saez and Gabriel Zucman sat down with Cal students this week for “Prop 40, the California Billionaire Tax and Cal: Professors Meet the Students.” 

Reich opened the discussion by framing the tax as part of a broader debate over inequality, fairness and political power. 

“Fairness is a big issue today. Fairness has to do with what people get for their labors — whether they think it’s fair in terms of the pay they are getting — but also whether they think the system is fair,” he said. “Fairness also has a lot to do with taxation. Are people paying their fair share? Do people perceive that everybody is paying their fair share?” 

Reich also outlined how extreme wealth and political power connect to one another. Established elites with a great deal of wealth can also wield significant political power, he said, and this raises issues for Americans on both sides of the political spectrum.

“Whether we’re talking about the Republican Party at the grassroots or the Democratic Party at the grassroots, we’re seeing people who want to take the country back, who want to assert some power over their lives, who want to have some agency, but feel, again and again, they are blocked, because big monopolies are blocking their way,” he said.

For Reich, the debate over a billionaire wealth tax is therefore tied to both questions of fairness and the concentration of economic and political power.

“California has led the way on reform after reform in this country,” Reich said. “And California, on Nov. 3, has the opportunity to lead the way again.”

Saez, whose wealth inequality research inspired Prop. 40, turned the conversation to the explosion of billionaire wealth in California, and what he described as the limitations of the state’s existing income tax system in taxing wealth at the very top.

According to Forbes research Saez presented, the wealth of California billionaires has increased by 170% in the last three-and-a-half years, a rise Saez attributed largely to the AI boom. However, Saez estimated that billionaires have paid about $21 billion in income taxes over the last seven years — only 1.6% of their combined wealth, he said.

“The individual income tax that this billionaire group has been paying over the last seven years is almost invisible, relative to their trajectory of wealth,” said Saez, who is the director of The James M. and Cathleen D. Stone Center on Wealth and Income Inequality at UC Berkeley. 

Saez also addressed arguments that have been raised by those who oppose the tax. On concerns that a wealth tax could cause billionaires to leave California, he argued that because “California is at the center of the AI boom that is reshaping the world,” billionaires who are “racing to develop AI and think it’s going to make [them] immensely wealthy,” would likely find a 5% tax “irrelevant in [their] business decisions.”

Zucman, whose research has focused extensively on wealth taxation — including his proposed “Zucman tax,” a one-time 2% wealth tax on ultra-wealthy individuals residing in France — brought the conversation to the potential global impacts of Prop. 40.

“Perhaps the explosion of extreme wealth has been utterly extreme in California, but all countries pretty much have to grapple with the same set of fundamental issues,” he said.

He noted that progressive taxation is a powerful tool that democratic nations have to cut the power of extreme wealth, but that the tax is an “unfinished revolution.”

“There is one solution if you want to complete the revolution, and that is the transition to a progressive income tax system. You need for the super rich, some kind of tax that’s based on their wealth,” he said. “Because income is easy to manipulate, but wealth is much harder to manipulate.” 

Zucman said that Prop. 40’s outcome not only has huge implications for California, but for the U.S. at large. 

“It’s extremely important for the planet, for the world as a whole, because if California does it — the heart of the explosion of billionaire wealth — it’s going to set an example for the rest of the world,” he said.