Writing at his eponymous Substack, California governor and presumptive candidate for the 2028 Democratic presidential nomination Gavin Newsom argues, “It’s time for a national billionaires’ tax and a new social compact.”
After some throat-clearing, he observes,
When 10% of the people in this country own two-thirds of the wealth, when we have minted the first trillionaire in human history, and yet your wages have stagnated, and your healthcare costs have skyrocketed, something is fundamentally broken. Over the decades, the American economy has been engineered for the very top, a story as old as time: Money buys influence, and influence rewrites the rules. Those rewritten rules funnel even more wealth to the few. Under this weight, democracy itself starts to buckle.
I’m increasingly of the view that this is right. It’s debatable whether money is speech. But it’s certainly influence, if not power.
After a discursion on why he opposes the wealth tax on the ballot in his home state, he continues,
So here is what I support: A national billionaires’ tax. A true minimum tax on billionaires — a modern Buffett Rule — that ensures the people at the very top pay at least the tax rate their own workers pay. Today, the office worker can shoulder a higher tax rate than the heiress. The construction worker could pay a higher rate than the developer. And the delivery driver can end up paying a higher rate than the founder of the company whose packages he delivers.
He doesn’t actually explain how he means to accomplish that outcome. The problem is manifold. First, “billionaire” is a status, not a paycheck. The very rich have an enormous net worth but, quite often, only a relatively modest income. Second, we treat different kinds of income differently under the tax code. Third, for many Americans, the FICA tax, which is ostensibly set aside to fund Social Security, is the largest tax burden. We stop charging that tax after $185,000 of income because we cap payouts and have, from the beginning, pretended it’s a self-funded pension system rather than a welfare program.
That system is the result of decades of loopholes written by lobbyists and upheld by politicians who knew exactly who they worked for. The wealthy have their own private tax code full of loopholes and exemptions that most people have never heard of, and they’re counting on politicians in Washington to maintain it and keep quiet.
While I’d quibble on the margins, this is mostly true.
We should end the “tax-free lifestyle loan,” the gimmick that lets the ultra-wealthy borrow against their stock portfolios while reporting no taxable income, and then pass the appreciated assets to their children with the gains untaxed. This loophole exists only for the extremely wealthy. We should close it.
It’s not a “loophole,” but rather a circumstance. I wholeheartedly agree that it’s unfair that the Elon Musks and Jeff Bezoses of the world can take a relatively modest paycheck and get the rest of their compensation in stocks that go untaxed until sold while leveraging that untaxed wealth to finance a lavish lifestyle. But it’s not obvious to me how we end this practice and Newsom doesn’t tell us. We don’t otherwise tax loans and, indeed, it would be absurd to do so. Hell, we actually subsidize home mortgage loans by allowing the deduction of interest (up to a point).
We also need to rewrite our inheritance rules. Over the next twenty years, this country will live through the largest intergenerational wealth transfer in human history, with roughly $124 trillion changing hands. If we do not act, that transfer of wealth among the ultra-wealthy will lock in a permanent American aristocracy of inherited wealth, with all the political consequences the founders warned us about.
By and large, I support taxing inheritances above a reasonably high amount. It’s not healthy that five of the top 25 in the Fortune 400 are people who happened to be related to Walmart founder Sam Walton.
The prospect of not being able to pass on the “family farm” or “mom and pop business” to one’s children are the edge cases used to justify not doing so, but it would be easy enough to find a limit to prevent that.
But, again, Newsom provides no details. At what threshold should we start taxing estates? At what amount? Simple confiscation? Half? What?
This country also needs to return to pre-2017 corporate tax rates and close offshore loopholes that allow multinationals to shift profits on paper to drive down their taxes. Trickle-down economics has been a nearly 50-year experiment that has failed. We have the data now: Record corporate profits flowed into stock buybacks and executive compensation. Workers’ real wages stagnated, and vibrant middle-class communities were hollowed out. It is time to stop pretending otherwise.
Here, I’m more skeptical. My instinct is to tax individuals who own and work for a business, while allowing the business itself to continue reinvesting its profits. But, to the extent we’re going to tax corporations, it seems obvious to me that the approach the Biden administration took is the right one: we should be working to standardize across the OECD and elsewhere so as to eliminate tax havens and the manipulation of taxation by creative accounting.
These common-sense tax proposals address part of the challenge. It’s clear that we are entering an entirely new economic paradigm. Automation could create unfathomable growth, but who benefits from that wealth? We need to ensure every American owns a stake in the future being built by AI through a national public equity fund that takes a major stake in the new economy. Simply, as artificial intelligence reshapes the country, every American should own a piece of the future it builds.
I honestly don’t know what that means. Is this a Trump-like strongarming of firms to give the government a piece of the action? Using sovereign wealth funds to buy up shares of publicly traded AI companies? And how would individuals, rather than the Treasury, have a stake?
Part of this fund could provide a real transition for the laid-off factory worker in Ohio or the 25-year-old coder in San Francisco who sent out a thousand resumes and got zero callbacks. This could include significant severance and portable benefits while we support them through the transition and into new jobs with programs like enhanced employment insurance.
Okay. But that’s not a stake in the future or even a new paradigm. That’s just job retraining, which we’ve done for decades. And, frankly, the notion that the average factory worker is going to transition to some sort of work in the AI sector flies in the face of history.
Which brings me to the bigger fight. There is a working coalition in this country of blue-collar and white-collar, urban and rural, the people who built this country and the people who are trying to find their place in it. They did everything right, and the system still has nothing for them. They are asking for the basics of a decent life, a home in a safe neighborhood, and a doctor they can see without dread. They need child care, an affordable college education, and something left over at the end of the month. What stands in their way is the federal tax code, a corporate code, and an inheritance code written for a different set of Americans. We can rewrite all three together at the federal level with a new social compact. It’s time for an economic reset for America.
Basically, the sort of democratic socialism that Western Europe has had for generations? That would, indeed, be a new paradigm. I’m skeptical that it can be financed by raising taxes on billionaires, but I’m willing to look at the math. We’re up to nearly a thousand billionaires—and one near-trillionaire—at this point, so it’s less silly than it would have seemed a decade ago.
The rest of the piece is campaign rhetoric rather than policy proposal. I’d definitely like to see the details of the latter.
