The first problem lies in how Messrs. Saez and Zucman measure taxable wealth. Under the U.S. system, taxes are generally assessed on income earned over the course of a year. Since 1920, federal tax law has followed the realization principle, meaning that income must actually be realized as earnings before it can be taxed. Messrs. Saez and Zucman instead propose taxing estimated changes in a person’s net worth—including unrealized capital gains that exist only on paper. If a billionaire’s stock portfolio rises in value, they want to tax the appreciation even if the assets are never sold.
Unrealized gains are notoriously volatile and speculative. They can disappear overnight with a market downturn. Federal courts have long viewed taxes on unrealized gains as constitutionally dubious, which is why Messrs. Saez and Zucman have shifted their efforts to the state level. California’s proposal is an attempt to circumvent the constitutional constraints that would doom a federal wealth tax.
Another problem is even more basic: The underlying wealth estimates are deeply unreliable. Because billionaire tax returns are private, Messrs. Saez and Zucman rely heavily on outside estimates of billionaire wealth. One of their favorite sources is the Forbes 400 list.
What they rarely acknowledge, though, is that the Forbes rankings were never designed to function as a tax database. The list has long suffered from what might be called the Donald Trump Problem. In the 1980s and ’90s, Mr. Trump repeatedly called Forbes reporters, at least once under a fake name, to lobby for higher estimates of his fortune.
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At the same time, they artificially inflate the tax burden borne by lower-income Americans. The federal income tax is intentionally progressive, and one of its most important antipoverty mechanisms is the Earned Income Tax Credit. The EITC frequently reduces federal income-tax liability for low-income workers to zero and in many cases provides net refunds.
Messrs. Saez and Zucman simply omit the EITC from their calculations. That creates the illusion that low-income Americans pay far more in taxes than they actually do. Harvard economist Jason Furman finds that the bottom 20% of Americans face an overall combined tax burden of approximately 11%—less than half the figure Messrs. Saez and Zucman claim.
The billionaire-tax movement depends heavily on stoking public outrage fueled by misleading statistics. Americans should be skeptical anytime activist academics present enormously complicated tax calculations as simple moral certainties.
It’s worth noting that Piketty, Saez, and Zucman have been repeatedly caught by economists across the political spectrum, including Obama’s Treasury Secretary Larry Summers, inflating wealth-concentration figures, using nonstandard methods to manufacture desired, errors, and in at least one case quietly scrubbing prior data from the internet when new numbers told a more convenient story. Their work is less a research program than policy advocacy dressed up in academic clothing.
In this case, their paper argues that the California billionaire wealth tax could raise around $100 billion, and that mobility responses would be manageable. But Josh Rauh has run the same numbers and arrived at a sharply different conclusion. Jack Salmon and I have written about this matter in the past, but here is the basic problem with the Saez-Zucman projections: they counted billionaires who had already left. Larry Ellison departed California in 2020. Larry Page and Sergey Brin left before the proposed liability date of January 1, 2026. These departures were public record. Yet the Berkeley paper’s $100 billion figure does not adequately account for a tax base that was already walking out the door before the vote was cast.
Rauh’s team found that those confirmed departures alone reduce projected revenues by nearly 40% before a single dollar is collected. Apply the mobility elasticities that the academic literature actually supports. Factor in the future California income taxes permanently foregone from departed taxpayers, and the tax produces a net present value loss to the state of at least $25 billion.
These economists should know better, because the French government has already run this experiment. Encouraged by Piketty and Zucman, France tried to tax the very rich. From Fortune: from 2000 to 2017, around 60,000 millionaires chose to leave the country. The revenue collection took a hit. France largely repealed its wealth tax in 2018.
Elon Musk is the world’s first trillionaire. I think that this is marvelous.
Many of our public officials, it seems, do not. California’s governor, Gavin Newsom, responded to the news by saying that “the rich get richer and everyone else gets shafted.” Senator Ed Markey complained that it was “disgusting.” Senator Elizabeth Warren suggested that it was a “wake up call.” Would-be Senator Graham Platner wrote that “Elon Musk just became the world’s first trillionaire. Let’s make sure he’s also the last.” And so on and forth.
I find this viewpoint revolting. Repulsive. Grotesque. Un-American. I hate it. As far as I’m concerned, Newsom, Markey, Warren, Platner, and those who agree with them are members of an impotent envy cult. Elon Musk has been responsible for PayPal, Starlink, Tesla, SpaceX, Neuralink, and more. If your primary reaction to his stewardship of these endeavors is to wonder how quickly you can confiscate the money he has tied up in them, you are a loser and you do not deserve the blessings that this country has bestowed upon you. That sort of thinking is at home in Belgium or Canada or Russia. It is not at home in the United States of America. There are many, many reasons that I wanted to move to this country, and one of them is that it is the sort of place where people such as Elon Musk are able to do great things. England has become sclerotic and its politics have become narrow and covetous. But America? America is a different beast. Elon Musk is the world’s first trillionaire? Hell yeah he is.
But SpaceX has pioneered innovations in space travel that very recently seemed like science fiction. “SpaceX’s ability to lower launch costs by roughly 90 percent—through reusable first-stage boosters, but also a vertically integrated manufacturing process and a high-cadence flight rate—is mega innovation equal to any of the past quarter century,” writes James Pethokoukis of the American Enterprise Institute. “That massive cost decline, with another 90 percent or more potentially on the way through full reusability, has fundamentally altered the economics of space and finally made possible the dreams of the original Space Age: orbital cities, deep-space habitats, space-based solar, asteroid mining.”
Besides, economics is not zero-sum. Musk’s balance sheet growing to a trillion dollars does not mean other people lose money; it means the economy as a whole is growing.
And growing economies are good for everybody, not just the uberwealthy: Between 1990 and 2025, the global share of people living in “extreme poverty” declined by nearly two-thirds, from 2.31 billion to 808 million, even as the global population increased by nearly 3 billion—an accomplishment J.D. Tuccille called “nothing short of miraculous.” It’s not a coincidence that over that same period of time, global gross domestic product (GDP) roughly quadrupled, boosting countless thousandaires into millionaires and millionaires into billionaires in the process.
Peter Earle, too, writes about Elon Musk becoming a trillionaire. A slice:
That Elon Musk is an immigrant to the United States who arrived without wealth, status, or elite connections in America will likely be lost amid the inevitable class-warfare point-scoring. Less remarked upon is that the companies he has founded or helped build — including Tesla, Inc. (134,000), SpaceX (22,000), Neuralink (300), xAI (1200), X (formerly Twitter) (1000), and The Boring Company (400) — now collectively employ on the order of 150,000 people worldwide, directly supporting a workforce larger than many midsized American cities. The temptation will be to generate interpretations of such a milestone in resentment-driven, zero-sum political terms. The more useful and accurate lenses are both financial and structural. An individual with a trillion-dollar net worth ultimately reflects markets allocating vast amounts of equity capital not to an individual, but toward uncertain but potentially transformative ideas; and, in the process, generating benefits extending across billions of lives and potentially generations beyond.
GMU Econ alum Dominic Pino tweets: (HT Scott Lincicome)
Today is a great example of why taxing unrealized gains is insane.
If Musk had to face a massive tax bill for paper gains from taking SpaceX public, he likely wouldn’t have done it, and the wealth SpaceX creates would be more concentrated in his hands.
Jim Bacchus criticizes Trump’s latest economically ignorant outburst about trade.
