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This interview was done before the Bernie Sanders Make Billionaires Pay Their Fair Share Act which was announced Monday. There is more at the bottom of the page.
As California confronts looming healthcare funding shortfalls and widening wealth inequality, a new proposal to tax the state’s billionaires has ignited a fierce political debate. Supporters argue the measure would generate billions to offset cuts to programs like Medicaid and the Affordable Care Act, while critics—including Governor Gavin Newsom—warn that the tax could drive the ultra-wealthy out of the state.
In this interview, journalist Joshua Scheer speaks with leading tax scholar David Gamage about the proposal, which would impose a one-time 5% wealth tax on California billionaires payable over five years. Gamage, who helped develop the policy and previously worked on Affordable Care Act regulations, explains why billionaires often pay dramatically lower effective tax rates than high-earning professionals—and why fears of a mass billionaire exodus may be overstated.
The conversation also explores how modern tax strategies like “buy, borrow, die” allow vast fortunes to grow largely untaxed, the historical roots of wealth taxation dating back to the Gilded Age, and why California could once again set a national precedent in tackling extreme wealth concentration.
California’s Billionaire Tax Debate: David Gamage on Inequality, Healthcare Funding, and the Fight Over Wealth
As California faces looming healthcare funding shortfalls and widening economic inequality, a proposed tax on the state’s billionaires is emerging as one of the most closely watched fiscal debates in the country. Supporters argue the measure could generate billions to offset expected federal cuts to healthcare programs, while critics warn it could drive wealthy residents out of the state.
In a recent interview, tax scholar David Gamage explained the economic logic behind the proposal and why he believes the current tax system allows many of the wealthiest Americans to pay far less—proportionally—than ordinary professionals.
Gamage, now at the University of Missouri and formerly a professor at University of California, Berkeley, has spent more than a decade researching wealth taxation and helped design several policy proposals across the country. He also previously worked in the U.S. Treasury Department helping implement regulations for the Affordable Care Act.
The California proposal he helped develop would impose a one-time 5 percent wealth tax on billionaires, payable over five years—effectively about 1 percent annually for five years. According to its architects, the measure is designed to raise enough revenue to offset expected healthcare funding losses caused by federal policy changes.
Why Billionaires Pay So Little
At the heart of the debate is a stark disparity in how income and wealth are taxed in the United States.
Gamage argues that the current system taxes wage earners far more heavily than those whose wealth grows through financial assets.
“Academic research suggests that at least three quarters of what we might think of as true economic income or increase in wealth is never taxed at all.”
While professionals earning large salaries—such as surgeons or lawyers—may face combined federal and state tax rates approaching 40 percent, Gamage says many billionaires face dramatically lower effective rates.
“The typical billionaire or ultra-millionaire in California has an effective tax rate that may be lower than 2 percent.”
The reason, he says, lies in the structure of the tax code. Wealthy individuals often accumulate their fortunes through appreciating assets such as stocks or ownership stakes in companies. Because those gains are not taxed until they are sold, enormous fortunes can grow for decades without triggering income taxes.
The “Buy, Borrow, Die” Strategy
One strategy frequently cited by economists is sometimes called “buy, borrow, die.”
Under this approach, wealthy individuals accumulate assets that increase in value but avoid selling them. If they need cash, they borrow against their assets rather than realizing taxable gains.
“If you can get your wealth in the form of financial appreciation,” Gamage explained, “you borrow against it through financial institutions who are happy to lend based on that wealth.”
Because loans are not taxable income, the strategy allows wealthy individuals to live off borrowed funds without paying taxes on their growing fortunes.
“If you play this game completely,” Gamage said, “you pay no tax—and when you die, all that untaxed gain disappears forever.”
This dynamic, he argues, effectively subsidizes massive wealth accumulation.
“Our current system creates a huge tax subsidy for massive wealth accumulations.”
A Return to Gilded Age Inequality
The rapid growth of billionaire fortunes has increasingly drawn comparisons to the Gilded Age, when industrial tycoons such as the Rockefellers and Mellons amassed enormous wealth.
According to Gamage, that period eventually prompted major reforms—including the creation of the federal income tax and estate tax—to prevent economic power from becoming permanently concentrated in a small number of families.
“The goal of progressive-era tax reforms was to make sure the economy wasn’t controlled indefinitely by oligarchs.”
For several decades after World War II, the United States experienced a broad expansion of the middle class. But Gamage argues many of the tax policies that supported that period have since eroded.
“In some ways, the anomaly in history was the post-World War II economy, where the middle class thrived.”
Today, wealth concentration is again reaching levels not seen in generations.
California as a Policy Laboratory
California has often served as a national testing ground for major policy innovations—from environmental regulations to vehicle safety standards. Advocates of the billionaire tax believe the state could once again lead the way.
The proposal currently being discussed would target only billionaires, not millionaires or high-income professionals.
Ninety percent of the revenue would be directed toward addressing a looming healthcare funding gap in the state, while the remaining ten percent would support education and other programs affected by federal cuts.
“The goal of the California billionaire wealth tax reform is to address the healthcare crisis,” Gamage said.
Labor groups, including healthcare workers’ unions, have been among the leading supporters of the proposal.
Will Billionaires Leave?
Opponents argue that taxing the ultra-wealthy will simply drive them to relocate to states with lower taxes.
The concern has been voiced by some California political leaders, including Governor Gavin Newsom, who has warned about the possibility of wealthy residents leaving the state.
But Gamage says decades of economic research suggest such fears are often overstated.
“All of the literature finds that mobility effects are small compared to the revenues.”
In practice, he argues, relocating to avoid taxes is far more complicated than simply buying a house in another state.
“To actually move as a matter of law, you have to move the bulk of your life,” he said. “Sell your country club memberships, move your activities, relocate your lifestyle.”
Many wealthy individuals may purchase homes elsewhere, he noted, but few make the full legal and lifestyle changes required to establish residency outside California.
“The evidence so far suggests that wealthy people don’t do that at significant levels.”
A National Question
Even if California adopts the measure, Gamage says it will not solve the broader national problem of wealth inequality. Federal tax reform would likely be necessary to address the issue comprehensively.
Still, he believes state-level efforts could play a critical role in demonstrating what is politically and economically possible.
“Successful progressive tax reforms at the state level have historically paved the way for federal reforms.”
With rising federal deficits, growing wealth concentration, and the possibility that new technologies such as artificial intelligence could further accelerate inequality, Gamage argues the debate is only beginning.
“Without meaningful tax reform, the trends in wealth concentration we’ve seen over the last 30 or 40 years could be supercharged.”
Whether California ultimately adopts the billionaire tax remains uncertain. But the debate reflects a larger question facing the United States: how—or whether—to adapt its tax system to an era of unprecedented private wealth.
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