Could A Wealth Tax Work? : Planet Money Elizabeth Warren wants to tax the wealth of the mega-rich to help fix inequality. Europe tried this, and failed. Can it work in the U.S.?

Could A Wealth Tax Work?

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What were you doing in Alaska?

NICK HANAUER: I was on my boat with my wife and another couple in the Misty Fjords.

ROSALSKY: And what kind of boat was this?

HANAUER: I have a big boat.

ROSALSKY: Is it like a yacht?

HANAUER: I think you would call it a yacht.

ROSALSKY: Nick Hanauer is rich.

Do you have a helipad on your yacht?

HANAUER: No, no, no.



Nick may have a modest yacht, but he could probably afford one with a helipad. He comes from a rich family, a family of pillow tycoons.

HANAUER: We turned a very small pillow company into one of the nation's largest pillow companies over time.

ROSALSKY: It's called Pacific Coast Feather Company. The family sold it a few years back. But while he still worked there, Nick started helping them sell their pillows on the Internet.

HANAUER: And it was absolutely clear in 1992 to me that physical retail was essentially going to be dead. And as luck would have it, I had a friend who shared that view. His name was Jeff Bezos.

ROSALSKY: And how did you meet Jeff Bezos, just out of curiosity?

HANAUER: He was dating one of my closest and oldest friends. And I was lucky enough to be the first investor in, and that led to other things. And before you know it, I was a full-time technology venture capitalist.

GHAZI: He started a company called aQuantive, which he eventually sold to Microsoft for $6.4 billion. He then invested in a bank with some friends and - you get the point. He's a capitalist. But not the like, Scrooge McDuck, Gordon Gekko, I'm-an-oil-man-style capitalist. He's also a philanthropist and got involved in politics.

HANAUER: And, you know, my theory of change in the early days was that all of the big challenges that America faced with rising inequality and poverty could be solved if you just had a successful enough education system.

ROSALSKY: Around 2007, he says, he began to realize that the problem was bigger than just schools.

HANAUER: The education system is not failing people. It's the economic system that's failing people.

ROSALSKY: The wealthy - specifically, the top 1% or the top 0.01% - were getting richer way faster than everyone else. And that scared Hanauer.

HANAUER: If this trend continues, people are going to revolt. History shows that that level of inequality results in either a police state or a revolution or both.

GHAZI: He saw a future where a tiny few had everything; a kind of feudal world that had to end in violent revolution. So to be clear, this wasn't just about do-gooding. He was worried about himself and his friends, you know, being punished somehow or, maybe, guillotined or something.

ROSALSKY: Anyway, being a zillionaire, he began to use his position to ring the alarm. And he bankrolled new causes, like a higher minimum wage.

GHAZI: He got so worried, he even gave a TED talk.

HANAUER: So in 2012, I gave a TED talk on economic inequality that got me thrown out of TED. Like, it was so controversial that we - that they asked me not to come back.

ROSALSKY: Yeah. So the video of his lecture got taken down. But since then, he's kind of become known for talking about inequality, especially this one line he has.


HANAUER: So what do I see in our future today you ask? I see pitchforks - as in angry mobs with pitchforks.


ROSALSKY: Hello, and welcome to PLANET MONEY. I'm Greg Rosalsky.

GHAZI: And I'm Alexi Horowitz-Ghazi.

The wealth gap in the U.S. has gotten so big that even yacht-cruising zillionaires are getting uncomfortable, turning on their own kind and demanding change. It's high-class warfare.

ROSALSKY: Today on the show, a new idea to redistribute wealth in America.

GHAZI: Its pitchforks versus pitch decks, torches versus Porsches.

ROSALSKY: The angry villagers are coming, and they have the data.


ROSALSKY: The last time inequality in the United States was as bad as it is today was during the Roaring '20s. We're talking "The Great Gatsby" - flappers and fedoras, prohibition. And then came the Great Depression. It obliterated fortunes and then led to major changes in how we regulate capitalism.

GHAZI: Elizabeth Warren, running for president, crusader against big money and wealth inequality, recently proposed one solution to this century's wealth gap. Here she is on the campaign trail.


ELIZABETH WARREN: We can pay for it. I've got a way. The Ultra-Millionaire's Tax.


GHAZI: And the Ultra-Millionaire Tax is a pretty new idea for the United States.

ROSALSKY: It is, actually. That's because it's a wealth tax not an income tax. Traditionally, if you wanted to tax the wealthy in America, you - for the most part, you tax income. It's been that way for, like, a hundred years.

GHAZI: And the income tax is progressive, meaning the more you make, the more you pay. And the old political debate focused on how much more the rich should pay.

ROSALSKY: But when it comes to inequality, it's really wealth more than income that matters. These two things often get conflated, but they're actually different. Income is what you make every year. It's like a running faucet.

GHAZI: Wealth is what you own - the money in your bank, your house, your car, your shares of Microsoft, if you have stock. It's like a reservoir. So Jeff Bezos, for example - he has a formal salary of less than $100,000 a year; not crazy high - about the same as a typical school principal.

ROSALSKY: But he's worth - at least before his divorce - about $120 billion. The thing that makes him rich is not his income. It's really, mostly, his stock in Amazon. And unless he sells it, he's not taxed on it. It just grows and grows. Nick Hanauer thinks this is crazy.

HANAUER: The reason that wealth is concentrating so much is that I can grow my assets for 40 years untaxed.

ROSALSKY: And if you don't have wealth, you, obviously, don't have anything just sitting there growing and growing.

GHAZI: What Warren is saying is she wants the federal government to tap the reservoir of wealth. She wants to tax wealth at 2% over $50 million and 3% over a billion. That means for every dollar you have over 50 million, you're paying two cents a year, and three cents on every dollar over a billion. That doesn't really sound like a lot, but maybe you're not thinking like a billionaire because really rich people think a lot about growth.

ROSALSKY: There are different estimates, but it's kind of safe to say that wealth grows, on average, about 6- or 7- or 8% over the long run.

GHAZI: Every year - and then it's growth on the growth, growing 7%, over and over again like a snowball - compound growth. With this plan, if the returns stay on track, the rich will still get richer but, like, half as fast.

ROSALSKY: So in a sense, 3% is kind of high.

GHAZI: Now, we haven't really taxed wealth in this country. I mean, we kind of do with the property tax, but that's state and local not federal. And it usually only applies to real estate. It's basically a wealth tax that taxes only one form of wealth.

ROSALSKY: And there is the estate tax, which is basically a one-time wealth tax, but the rich person you're taxing has to die first.

GHAZI: What Warren is proposing is the federal government count up the value of all the rich people's stuff and tax it every single year. We're talking diamond rings, jet skis...

ROSALSKY: Normal skis...

GHAZI: ...Fancy tchotchkes...

ROSALSKY: ...Maseratis...

GHAZI: ...Giacommettis.

ROSALSKY: What is that?

GHAZI: They're statues for rich people.

ROSALSKY: Well, you know, as you might expect, a lot of rich people - they don't love the idea of a wealth tax.

GHAZI: Here, for instance, is Frappuccino magnate and former presidential candidate Howard Schultz on NPR.


HOWARD SCHULTZ: When I see Elizabeth Warren come out with, you know, a ridiculous plan of taxing wealthy people...

ROSALSKY: So the founder of Starbucks hates it.

SCHULTZ: I mean, you can't just attack these things in a punitive way by punishing people.

ROSALSKY: So do a bunch of other rich people.

GHAZI: But not all of them - Nick Hanauer, the early Amazon investor - he isn't the only one-percenter jumping yacht.

LIESEL PRITZKER SIMMONS: I got born really lucky.

ROSALSKY: This is Liesel Pritzker Simmons. She's a former child actress. You might have seen her in "Little Princess" or "Air Force One." She's honestly great in the movies, but that's not how she made her money.

PRITZKER SIMMONS: My family had a number of different businesses. But the one that they are best known for is Hyatt Hotels.

GHAZI: Liesel and her husband Ian - also rich - say they have been thinking about the wealth tax for a while now. But it wasn't until Warren's plan that they saw real numbers. And they thought, yeah. This could be a good thing.

PRITZKER SIMMONS: This is a relatively moderate tax on a fair amount of wealth that could go to public use, you know, better than it sitting, you know, in our art collections.

ROSALSKY: They thought it was time to send a message from rich America to the rest of America - guys, it's cool. We're down with the wealth tax. So they started calling their rich friends; among them, George Soros, billionaire investor...

GHAZI: Chris Hughes, one of the founders of Facebook...

ROSALSKY: ...Abigail Disney, you could probably guess where that money comes from...

GHAZI: ...and Nick Hanauer.

ROSALSKY: In the end, they got 18 other zillionaires to sign this letter. And, actually, we have the letter here.

GHAZI: They actually published it on Medium, which is a blog site.

ROSALSKY: But we printed it out. And it's called “An Open Letter To The 2020 Presidential Candidates: It’s Time To Tax Us More.” That kind of captures it, but there's some other things that got in here - an American flag looking - billowing in the sun.

GHAZI: Oh, that's really billowing and beautiful. OK. They basically lay out everything they say a wealth tax could help pay for. They say it could help address the climate crisis...

ROSALSKY: America's aging infrastructure...

GHAZI: ...Childcare costs...

ROSALSKY: ...Public health challenges, like the opioid epidemic.

GHAZI: They say it's fair, patriotic.

ROSALSKY: The basic gist of this letter is this - Elizabeth Warren's specific proposal says it's going to raise like $2.75 trillion over 10 years. And these zillionaires are saying, that's a lot of money that we could use to fix America's problems.

And taxing wealth in this way is increasingly popular. There are a few polls that show a clear majority of Americans support it - like, three-quarters of them. Even a majority of millionaires say they support this policy.

GHAZI: But there is a caveat. Wealth taxes have been tried before in other countries. And their track record?

SARAH PERRET: I would say, in general, it hasn't been great.

GHAZI: After the break - when wealth taxes go wrong.


ROSALSKY: A wealth tax - it may be new for the U.S. federal government. But actually, wealth taxes, they've been tried before.

PERRET: They actually used to be quite popular in European countries.

GHAZI: This is Sarah Perret. She's an economist at the Organization of Economic Cooperation and Development, or OECD. She did a study about wealth taxes and how they worked out. She says in 1990, there were 12 countries in Europe that had a wealth tax. Today there are only three.

PERRET: And so the trend has really been to repeal them.

ROSALSKY: Perret says wealth taxes failed for a bunch of reasons. First, they were tough on people who looked rich on paper but were, in fact, short on the cash needed to pay the tax. An example...

PERRET: The typical one that comes to mind is an old lady who retired a long time ago.

ROSALSKY: This lady, Perret says, has a house and jewelry and a bunch of other assets that make her look rich to the government. But really, she only has a small pension, and it's hard for her to come up with the money to pay the wealth tax.

GHAZI: Another problem with the wealth tax - it was pretty expensive to track and value rich people's stuff every year.

PERRET: It's more complicated than an income tax, for example, or a property tax where you're just taxing one type of asset. So here, you're taxing all types of assets.

GHAZI: Some assets are pretty easy to value, like stocks or bonds. But others, like paintings or your grandma's engagement ring or your rare ocelot or your rare savannah cat...

ROSALSKY: Ostriches...

GHAZI: ...Or your alpaca farm.

ROSALSKY: ...Tigers.

GHAZI: So the government is going to have to figure out a way to assess the value of all of that, which means bureaucracy - more accountants, tax collectors, calculators, spreadsheets, the whole nine yards.

ROSALSKY: Third issue - exemptions. Countries wouldn't tax all kinds of assets. So like, in France, for example, they didn't tax artwork or antiques. The logic was like, why waste money figuring out what these things are worth? Other countries exempted business assets, things like factories, machines and other things that, like, create jobs and help the economy.

GHAZI: And all those exemptions created a bunch of problems. There was less money coming in because all those assets weren't being taxed. The people with the best accountants and lawyers gamed the system, which made it unfair. Plus, it created incentives for people to put their money in quirky, weird places, like artwork or antiques.

ROSALSKY: Which is great for artists and antique dealers - but not for the economy as a whole. And of course, rich people tried to protect their money by getting it out of the country. There is a term for this.

PERRET: Capital flight.

GHAZI: Capital flight. Like, rich people who couldn't figure out another way to evade taxes would sometimes just pick up and move. Like, for example, a ton of millionaires left France and moved right across the border to Belgium. And poof - no more wealth tax. Or they'd find some tax shelter, like in Monaco or the Cayman Islands or something - also not good for the economy.

ROSALSKY: So in the end, the policy didn't even raise much money. Like, it didn't do what it was supposed to do. So back to Warren. Her camp argues they specifically designed their proposal with Europe's failures in mind. Warren's proposal, it really only taxes the very, very rich - those with over $50 million in wealth.

GHAZI: That's only about 75,000 families in the United States. In Europe, the threshold was much lower - in some cases, around a million dollars or even less - not the ultra-rich, but the sort of rich. So under Warren's plan, that old lady with the fancy house and the nice jewels, she's going to be just fine, not rich enough to get taxed.

ROSALSKY: Plus, the proposal says, very clearly - no exemptions - none, zero, zilch, nada.

GHAZI: But what about my sports car?

ROSALSKY: No - yeah, that's going to be taxed.

GHAZI: How about my pet tiger?

ROSALSKY: Tigers will definitely be taxed.

GHAZI: My musket collection.

ROSALSKY: How rich are you, Alexi?

GHAZI: Faberge eggs?

ROSALSKY: None of that.

GHAZI: But no exemptions means the IRS is going to have to get bigger and way better at tracking rich people's stuff every year. They're going to have to value those Faberge eggs and Birkin bags and pet tigers. Have you ever had to value a tiger? Well, the IRS is going to have to have a tiger guy now. Plus, the gold leash - how much are those anyway? I don't know.

ROSALSKY: To many people, this sounds like a lot. But Nick Hanauer, he doesn't think it's a big deal at all.

HANAUER: You hire 300 IRS agents - they cost $200,000 apiece - just focus on nothing but this problem. That costs $60 million against literally hundreds of billions of dollars in potential income. I mean, it's cheap to do.

ROSALSKY: And he says this valuation problem, you know, figuring out how much your tiger is worth - this can be solved.

HANAUER: There's a very, very, very simple way to handle this, which is you get to write down all of your assets and pick a number. And then the government has the right to buy any of those assets at the price that you pick.

ROSALSKY: This self-valuation method, by the way, it is kind of brilliant. I mean, think about it. If you try to save money by undervaluing your stuff, you're going to lose it. And I mean, this is obviously going to be a tough sell in the United States. But let's say the government is able to do something like that; that still leaves the issue of capital flight.

GHAZI: But U.S. citizens can't just move to another country to avoid taxes. The U.S. taxes its citizens wherever they are in the world. So tax evaders would have to renounce their citizenship to legally avoid the wealth tax. And if you're a rich person who renounces your citizenship, Warren proposes the federal government confiscate 40% of your wealth over a billion dollars.


GHAZI: Wow. You're a suspiciously good whistler.


GHAZI: But there's another big problem - the U.S. Constitution. It makes it hard for the federal government to directly tax people. A hundred years ago, it took a constitutional amendment to institute the income tax. There are some legal scholars who argue we'd need another amendment for a wealth tax. And that would be a huge hurdle to jump.

ROSALSKY: But if you support taxing the wealthy more and this constitutional issue ends up being a problem, there might actually be good news. Sarah Perret's study concludes you can deal with wealth inequality without a wealth tax.

PERRET: Our study finds that, in general, a combination of broad-based taxes on personal capital income - so taxes on dividends, capital gains, interest - as well as well-designed inheritance taxes might be a more effective way of addressing wealth inequality without some of the negative sides of wealth taxes.

ROSALSKY: And in fact, in many countries in Europe where wealth inequality is not quite as bad as it is in the United States, this strategy seems to be working.

GHAZI: But it wouldn't touch many of today's huge fortunes for decades. Lots of billionaires are pretty young. Mark Zuckerberg, for example, he was only born in 1984. An inheritance or an estate tax might not affect his wealth for, like, 50 or 60 or 70 years depending on whatever bionic implants he might be able to get. I mean, he could live forever.

ROSALSKY: Literally forever. If we have the technology in the next 50 years to, like, upload his consciousness into the cloud...

GHAZI: Just floating in our phones all the time.

ROSALSKY: ...We'll never be able to tax him. And look. If you really want to destroy wealth inequality - to actually roll it back - a wealth tax of 3% isn't really going to cut it. Again, wealth grows at like 6 or 7 or 8% per year, on average. That letter that Nick and Liesel signed, it calls specifically for a, quote, "moderate wealth tax."

And so we were curious. Like, when does it stop being moderate? How much are these zillionaires really willing to pay to stop the pitchforks?

GHAZI: So we asked Nick Hanauer, that yacht-owning venture capitalist who riled up so many of his fellow one-percenters - when does the wealth tax stop being moderate and when would he stop supporting it?

HANAUER: Oh, that's a super good question, and it's something I haven't thought carefully about. So a moderate - to me, a moderate wealth tax simply slows the growth of large pools of assets. And so a 2% tax on that or a 3% tax on that slows the growth rate from, let's say, 8% to 5%, which means you're still getting a ton richer than everyone else in the country. If you take the growth rate to zero, that's no longer moderate. And I guess, that begins to test even my comfort with a wealth tax.

GHAZI: So perhaps unsurprisingly, Hanauer has limits - tax enough to slow the growth, not so much you stop the growth.

ROSALSKY: But he's still out there agitating amongst his fellow zillionaires. In fact, after we got off the phone with him, he said he was headed to Edinburgh to give a speech about wealth inequality. And he's still pushing for a wealth tax.

GHAZI: A moderate wealth tax.


GHAZI: Do you have thoughts about progressive taxation for the ultra-wealthy? Email us at - Or find us on Twitter and Facebook. Want to help PLANET MONEY? Review us in Apple's Podcast app. It helps us stand out from all the true crime shows.

ROSALSKY: By the way, if you want to hear more from pillow tycoon Nick Hanauer, he actually has a podcast.

GHAZI: Is it called pillow talk?

ROSALSKY: No, it's called "Pitchfork Economics."

GHAZI: Today’s episode was produced by Liza Yeager and fact-checked by Cynthia Betubiza. Bryant Urstadt edits the show. And Alex Goldmark is our supervising producer.

I'm Alexi Horowitz-Ghazi.

ROSALSKY: And I'm Greg Rosalsky. This is NPR. Thanks for listening.


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