The Deceptive Statistics Behind California’s Wealth Tax

Saez and Zucman have spent years using dubious assumptions to push the case for confiscation

By Phillip W. Magness. Excerpts:

"For years the pair (Emmanuel Saez of UC Berkeley and Gabriel Zucman of the Paris School of Economics) have relied on selective accounting methods and questionable assumptions to tilt the scales in favor of confiscatory wealth taxes."

"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"

"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."

"wealthy Americans to exaggerate rather than minimize their fortunes"

"these estimates are systematically inflated."

"the pair has repeatedly asserted that the ultrarich pay a combined federal, state, and local tax rate of only 23%, supposedly lower than the 24% working-class Americans pay."

"Messrs. Saez and Zucman’s own earlier research told a very different story. In a 2018 paper published in the Quarterly Journal of Economics, their own data files showed that the top 0.001% pay an average combined tax rate of roughly 41%."

"they changed their approach and assigned the full burden of the corporate tax to shareholders alone."

"this maneuver dramatically lowers the apparent tax rate paid by billionaires." 

"they artificially inflate the tax burden borne by lower-income Americans . . . omit the EITC from their calculations."

"Jason Furman finds that the bottom 20% of Americans face an overall combined tax burden of approximately 11%"