In this episode, host Gwyneth Shaw talks with Professor Brian Galle, who’s just released a new book, How to Tax the Ultrarich, outlining a plan for fairer taxation at the federal level. In the United States, the top 0.1 percent — about 340,000 people — now hold $1 in every $6 of private wealth, or roughly $23 trillion. In the book, which was published by the Roosevelt Institute, Galle proposes reforms to make the super wealthy pay taxes on the growth of their fortunes, with methods he argues could avoid being struck down by the U.S. Supreme Court.
Galle joined the Berkeley Law faculty in 2025 after a decade at Georgetown Law; he also taught at Boston College and Florida State. He holds a J.D. from Columbia and an LL.M. in taxation from Georgetown. In 2022 and 2023, he served as a Senior Fellow at the Securities & Exchange Commission, helping to draft and strategize major rulemaking for the Commission. Before he was a professor, he was a federal prosecutor in the Criminal Appeals and Tax Enforcement Policy Section at the Tax Division of the U.S. Department of Justice.
Galle teaches in the fields of federal income taxation and corporate tax law and policy.
Here are some other examples of Galle’s recent work:
Money Moves: Taxing the Wealthy at the State Level
The Constitutional Money Problem
About:
“Berkeley Law Voices Carry” is a podcast hosted by Gwyneth Shaw about how the school’s faculty, students, and staff are making an impact — in California, across the country, and around the world — through pathbreaking scholarship, hands-on legal training, and advocacy.
Production by Yellow Armadillo Studios.
Episode Transcript
(upbeat electronic music)
GWYNETH SHAW:
Hi, listeners. I’m Gwyneth Shaw and this is Berkeley Law Voices Carry, a podcast about how our faculty, students, and staff are making an impact through pathbreaking scholarship, hands-on legal training, and advocacy. My guest for this episode is Professor Brian Galle, who’s just released a new book, How to Tax the Ultra-Rich, outlining a plan for fairer taxation at the federal level.
In the United States, the top 0.1%, about 340,000 people, now hold one dollar in every $6 of private wealth, or roughly $23 trillion. In the book, which was published by the Roosevelt Institute, Galle proposes reforms to make the super wealthy pay taxes on the growth of their fortunes with methods he argues could avoid being struck down by the US Supreme Court. Galle joined the Berkeley Law faculty in 2023 after a decade at Georgetown Law.
He’s also taught at Boston College in Florida State. He holds a J.D. from Columbia and an LL.M. in taxation from Georgetown. In 2022 and 2023, he served as a senior fellow at the Securities and Exchange Commission, helping to draft and strategize major rule-making for the commission.
Before he was a professor, he was a federal prosecutor in the Criminal Appeals and Tax Enforcement Policy Section at the Tax Division of the US Department of Justice. Galle teaches in the fields of federal income taxation and corporate tax law and policy, and plans to continue teaching a course covering nonprofit organizations and a seminar he calls Law and Economics of the Public Sector, which takes a public finance economics concept and ties it to some legal controversy. Thanks for joining me, Brian.
BRIAN GALLE:
Sure, thank you, Gwyneth.
GWYNETH SHAW:
Let’s start with the basics. What is the problem you’re trying to solve and how would your proposal work?
BRIAN GALLE:
Yeah, the problem that the book tries to solve is a small one, which is that our economy and our political system are, you know, teetering on the brink of a Turkey-like collapse towards 70% inflation rates and a flight of the most productive members of society. So just a small problem. Now, it’s not clear that the tax system by itself is gonna, you know, arrest, stop that kind of slide, but it can make an incremental contribution.
And so the idea of the book is no one who looks at our tax system right now is gonna say it’s fair, or it’s progressive, or it’s working for 99.9% of Americans literally. The difficulty is that today, the Supreme Court maybe is standing in the way of what seem like some common sense solutions. And so the book tries to work out how to balance the economic imperative of making the tax system fair and more progressive with the constitutional constraints that the Supreme Court is hinting that it would impose on anything that Congress tried to do.
So the book is about federal legislation, it’s about nationwide efforts to address kind of the unfair federal tax system that we have today. Separately, not in the book, I’m also involved in some policy efforts in California that people may have heard of including helping to write the text of this thing called the 2026 California Billionaire Tax Act, which we’re hoping will be on the ballot in November of 2026. And many of the things that I say in the book aren’t actually relevant for the California effort and vice versa, because the, the unique legal constraints that Congress is facing at the federal level are not actually barriers to state wealth taxes.
Every state in America had a wealth tax at the turn of the 20th century. There are longstanding traditional fiscal instruments that the states have used, and actually many of them still use today. So no legal problems with taxing the super rich by taxing their wealth, for example, at the state level.
The book is all about kind of the balance of the economic imperatives with the legal obstacles at the federal level. So let’s talk about like what’s the, you know, the economic imperatives that the state and federal efforts share in common first, right? Or that, like you said, the ultra-rich in the US today are as ultra-rich proportionately as they’ve been in kind of recorded history.
You know, we don’t have great financial data of, you know, proportionally how rich Rockefeller was in the 19th century or something. But as best we can tell, right, this is the most gilded of Gilded Ages America has ever seen. The, so the concentration of wealth in the hands of not just kind of the, the richest 340,000 out of 340 million that you mentioned, but even more extreme, like if you talk about the richest couple of hundred people, those people seem to have a much larger share of US wealth than has ever been true before.
In the economic literature, there’s no country that’s had concentrated growth like that and has gone on to have a successful, thriving economy. So there’s a lot of evidence that when you have inequality and wealth concentration like that, lots of bad things happen sort to the economy. And it kind of makes sense, right?
When you have that kind of concentrated growth, you have concentrated power. And so the people with that concentration of wealth tend to steer the country so it does things that are good for them and that they like, and not necessarily things that are good for everyone else. And so countries with this kind of concentrated wealth, you know, high inequality, have more economic crises.
They have more crises of all kinds because kind of the leadership of the country is beholden to them and is not preparing for the worst for everyone else. They often have crippling inflation. You know, Turkey is the example there.
They’re less innovative. They grow more slowly. It’s much harder to start new businesses, right?
The people who are established and in power are not interested in having new people come up and challenge them. And ultimately, it’s, you know, sort of ironically not that different from a communist system, where the state just takes or demands most of the wealth from new entrepreneurs, right? In a system like the one in Turkey, right, to succeed, you can only succeed by being on the side of the ins or by bribing them, and that means there’s not much incentive for, you know, economic innovation or growth.
The people who have good ideas go somewhere else. And so that’s what ultimately strangles the economy. And so I don’t think anyone wants that to be the path that we continue on.
It’s not to say it’s an inevitable one, but I think we should take every available step we can to avoid, you know, going too much further down it. And so the tax system is one of the ways that you can kind of de-concentrate the super concentrated wealth that we’re currently experiencing and, you know, some of that is gonna be long-term efforts, right? So one of the things that the book tries to fix are inheritance taxes and the transmission of wealth and power from one generation to another.
The Succession episodes, right, that, you know, we’re seeing right now with, you know, several media companies, for instance. You know, people hope that the, you know, the, the new generation of Murdochs is more open to democracy and a thriving e– economy than the old generation of Murdochs, and that’s just not a thing that a healthy economy or political system really can stake its life on. So that’s the economic imperative, economic, political imperative, right?
How do we fix the system that we got through the tax system that we have? You know, how do we use the tax system to try to make things a little bit more equal? Well, one obvious way is to try to impose a greater tax burden on the ultra rich.
Right now though their tax burden is exceptionally low, so my Berkeley colleague Emmanuel Saez and some of his co-authors including I think another one of my Berkeley colleagues, Danny Yergin, they find that the all-in tax rate that’s paid by kind of the richest Americans, kind of the richer of the billionaires that they have good data on, their tax rate is 20% lower than the median American household. And so the median American household has a net worth of zero, all right, ’cause they have substantial debts. They might have some assets, but they also have substantial debts.
So we’re talking about billionaires paying a 20% lower tax rate than a household with a net worth of zero. So that’s obviously not a fair or progressive tax system. Why is it so, you know, out of whack?
It is true that we have progressive tax rates, right? The higher your income, the higher rate you’ll pay on that income. And the answer is because a very simple aspect of our tax system is when an investor makes money we only tax that investor when she actually chooses to sell the investment asset.
It’s sometimes called the realization rule, it’s like a technical tax term for it. And indeed, if you make it to the end of your life without ever selling your investment, there will never be any tax on the investment gains that happen during your lifetime. Your heirs get to receive that asset without ever paying any income tax.
Now there is an estate tax in America but it’s badly broken, and so it’s quite possible for heirs to receive vast fortunes of, you know, hundreds of billions of dollars while paying essentially zero tax. The family could pay zero tax, indeed you know, more or less in perpetuity. And so that’s a big problem, right?
Reasonable people during the Biden administration, smart people suggested for instance that maybe we oughta raise the tax rate on investment gains. And the problem is if you try to raise the tax rate what’ll happen is investors will respond by selling less of their assets and finding other ways to live their lives, right? So for instance, a weird wrinkle of our tax system is when you borrow money, that doesn’t count as taxable, and so one thing among many options that billionaires have is they sometimes called buy, borrow, die, right?
They acquire their assets, they borrow money to sustain their lifestyle, and then they die without ever paying any tax. It actually turns out you don’t have to borrow a lot if you’re a billionaire. You have so much money that you can’t possibly spend even the small trickle of income that comes off of that giant pile of wealth each year, and so you don’t actually need to borrow very much.
You pay a tax on only a small fraction of your giant pile of wealth, but that turns out to be enough to sustain a lifestyle with like multiple helicopters. So, right, what do we do, right? We want to raise the effective tax rate on these very wealthy individuals, but if we raise the tax rate they’ll just respond by kind of borrowing more probably, and so a couple of the conventional answers are a wealth tax or something very similar to a wealth tax called a mark-to-market tax.
I sometimes describe a mark-to-market tax as it’s just a tax each year on your untaxed investment gains, right? So each year when your stuff goes up in value you include that, and if your stuff goes down in value you take a deduction for that. That’s a mark-to-market tax.
Here’s the problem. In 2024, the Supreme Court decided a case about a small narrow provision that the challengers said was a mark-to-market tax. The Supreme Court ultimately disagreed.
They said that actually isn’t a mark-to-market tax, we think that’s something else, it’s a, basically a standard income tax. But along the way, the Supreme Court said, “We’re not saying that a wealth or mark-to-market tax would be constitutional.” Because there’s this thing, the 16th Amendment.
The 16th Amendment says that the Congress can tax incomes from whatever source derived. If you’re interested, we could talk about why we needed that amendment. It’s not an exciting story.
And what the Supreme Court said in 2024 is, “We’re not sure whether a change in the value of an asset from year to year before it’s sold counts as income under the 16th Amendment.” And in fact, there were four conservative justices who went so far as to say, “We’re sure and we’re sure it’s not income.” And then it was two of the other conservative justices who didn’t feel the need to take a position on that yet, but they definitely hinted, right?
And I don’t think anyone has to guess really, like if Brett Kavanaugh had a chance to weigh in on Elizabeth Warren’s proposed wealth tax, I think we know what he would do given that there is this, I think bad and unpersuasive, but not totally loopy and out of nowhere legal basis for saying that a wealth tax is not within the scope of the 16th Amendment, right? Because they can say it has to be income. Well, so the solution that the book proposes is, okay, you can only tax things at sale.
Let’s tax things at sale, but at sale we’re gonna tax them at the same rate that the investor would have gotten essentially if they had been paying tax each year all along. So another way to put that is imagine that you start with $100 million and then each year you were subject to a mark-to-market tax, so you were taxed on the changes in the value of that thing as it goes up to a billion. And as the kind of the pre-tax value went up to a billion, if you were paying mark to market taxes all along, maybe you would’ve been left at the end of that period with 700 million.
So under my proposal, which I call the Fair Share Tax or FAST, F-A-S-T, right? When you sell that originally $100 million asset, you will pay 300 million in tax, right? Where 300 million is exactly the amount that you would have lost to a mark to market tax over time, it’s the exact amount the government would’ve collected over time from a mark to market tax.
Why does that make sense? Well, from the taxpayer’s perspective, there no longer is any reason to wait until death to sell because the longer they wait, the higher a tax rate they’ll pay. The more appreciated the asset is, the higher tax rate they’ll pay.
They can’t reduce. After adjusting for the kind of the value of waiting, they can’t reduce the amount of tax that they pay or putting it in another way, right? They can’t walk away with more money by waiting than they would’ve got, than they get by selling.
They come out in the same place either way. So we get the same progressivity as the mark to market tax. We get the same revenues as the mark to market tax.
We get the same incentives that the taxpayer has, as a mark to market tax. The only thing that’s different is the timing, right? It doesn’t happen until the taxpayer sells.
And in theory, the sales should happen a lot faster, pun intended, right, under the FAST because there’s no longer this tax reason to wait. Waiting is costly, right? It costs money to wait to sell your stuff.
And so why spend that money to wait if you aren’t saving anything by doing it? That’s the core insight behind the proposal.
GWYNETH SHAW:
I totally take your point, which is why would anyone put the political capital up on the table to get something passed that the Supreme Court is very likely to knock down, right? That makes a ton of sense.
What are some of the arguments to play devil’s advocate against yourself, what are some of the arguments that you can see politically or legally against this?
BRIAN GALLE:
Yeah. I mean, one, I think important political worry is are we worried that if we wait until people sell to collect the tax, that actually after the Congress that enacts this tax there’ll be another Congress that repeals it before anyone ever has to pay?
And so, you know, even though it looks like the incentives are the same But the timing is different, sometimes the fact that the timing is different could mean that the incentives are different, but if there’s like this political change possibility. And so one of the bells and whistles in the 150 pages is it’s set up to encourage people to choose to pay sooner than sale.
So in addition to paying at sale, the other option that everyone who’s sufficiently rich, the baseline proposal is everyone who’s worth more than about $30 million but obviously legislators could choose a higher number or lower number if they wanted, that’s just chosen ’cause that’s where the estate tax exemption is today. So everyone who would be subject to the FAST, people who are worth more than $30 million essentially, they could choose to pay sooner than at sale. Why would they do that?
A few reasons, right? One is, like I said, it doesn’t matter when you pay assuming you, that you don’t expect the law to be appealed, you’re gonna come out in the same place either way. So the idea is you make the option to prepay a little bit more advantageous than waiting until sale.
For instance at, you know, the capital gains rate is 20%, you could make it 19% if you prepay, 19.5%. There are a lot of kind of similar little tweaks that you could make. But more generally, almost everyone who’s super rich is going to want to prepay because prepaying is essentially the same as if you could borrow at a low rate to pay off a loan at a higher rate.
So one way to think about what the fast is doing is it’s taking that mark to market tax and it’s treating it as if the government lent you the money to pay the market to market tax, and then it’s collecting back on that loan plus interest when you sell. And the interest rate you’re paying when you sell is the same rate of return that your investment was earning, so if you’re, you’re Bezos and your, you know, your Amazon stock has grown by about 2,000% since 2000, which my math isn’t great, but I think that’s about 40% a year on average. Obviously Bezos could borrow to actually pay off a tax that he volunteered to pay at way less than 40% a year.
So it’s a super good deal for him to take the prepayment option, go out and actually borrow if he doesn’t have the cash to pay off the tax, and he’ll probably pay an interest rate of something like 5%, 6%. So borrowing at 6% to invest in an asset that’s earning 40%, that’s a really good deal. So most people are gonna want to prepay and, you know, you can add extra sweeteners in order to encourage them to do that.
So there is a big political worry But, you know, I’ve tried to design it to kind of defang that worry a little bit. But the other big legal worry, right, is the Supreme Court’s gonna say this isn’t an income tax but it’s a tax at sale which is exactly what they say that the 16th Amendment requires.
Now the rate varies depending on how long you’ve held the asset, but that’s already true in the income tax today, right? We have the capital gains rate which is different for long and short-term capital gains, stuff you’ve held for more or less than a year, and that’s been true since 1921. And a thing that’s important for Brett Kavanaugh is whether a provision kind of has a long history and tradition, he says.
So there’s very little actually, you know, if that tradition of having stuff being taxed at different rates depending on how long you’ve owned it is almost as old as the income tax which goes back to 1913.
GWYNETH SHAW:
You mentioned this kind of being an unprecedented situation at least in American history in terms of wealth concentration. How did we get here? Because those of us who remember the Gilded Age from history class, can sort of remember both the people who were concentrating wealth in that period and also some of the reforms and laws that were put into place.
How did we get from that moment to now?
BRIAN GALLE:
Yeah. It’s an excellent hard question. You know, better social scientists than me, kind of have written a lot about it so all I can do is give you a little bit of kind of the, you know, the tax system perspective.
And the tax system perspective is that, you know, we radically cut top tax rates in 1986, as part of a deal that the Reagan Administration made with Congressional Democrats. And basically the deal was before 1986 there were a bunch of kind of loopholes that very rich households were exploiting and so including some really silly ones like, you know, it turned out that having an alpaca farm was a really good way to save on taxes. It’s definitely one of the cuddliest ways to pay low tax.
And so, you know, the 1986 bargain was, “We’ll cut the top rates by a lot but we will also close all these loopholes.” So, you know, we’re gonna cut the rate down to more like, you know, now the top rate is 37% but people are really gonna pay that number. Except it turns out people don’t really pay that number because over time a few things happened.
One rich people and their lawyers discovered new ways to reopen those loopholes. I don’t know if it’s Alpaca farms exactly or maybe it’s Llamas these days, but there’s a lot of good reporting showing a lot of those loopholes now are more open than we thought. The other thing is that there was a vast increase since the ’80s in the wealth that top individuals hold in the form of their investments, whether it’s the, you know, the share of a private equity fund that a PE manager gets paid with, it might be stock of a publicly traded company that a CEO or founder has, or it might just be kind of the sweat equity of somebody who built, you know, a network of seven used car dealerships.
But overwhelmingly, you know, way more wealth in America is held in the form of investments, and when wealth is in the form of an investment we have that double problem, right? One, the top rate is much lower. It’s effectively 23.8% for high-earning Americans, and most of those people get to choose when to pay tax, and unsurprisingly the answer they generally choose is never.
GWYNETH SHAW:
So as you mentioned at the beginning, this is also an issue in California right now and you’re working on some of the proposals that are underway in California. Can you talk about that? I mean, you’ve already mentioned that there’s a pretty big difference between what you can do at the state level versus the federal level.
Can you just kind of walk me through what those differences are and what’s happening in California right now?
BRIAN GALLE:
So, California in addition to kind of the general situation that the US is facing has a fiscal crisis right now because in July, in order to pay for yet more huge tax cuts that the administration gave to millionaires and billionaires, they cut about $100 billion dollars in funding for healthcare in California over the next five years. Also, they cut some significant amount of money, it’s unclear exactly how much, but probably multiple billions of dollars for food security, especially food security for kids, and also some education funding. So California is looking at a bunch of holes, but kind of the most urgent one that the 2026 Billionaires Tax Act is focused on is this $100 billion hole for healthcare.
And so the, you know, the health workers and health providers in California are, you know, concerned, one, about the impact directly on their members, but also indirectly on the California economy, right? So when there’s not enough money to pay for healthcare, healthcare providers don’t generally turn people away. Instead, right, they have to figure out, How do we pay our bills?
How do we, you know, get the replacement parts for the MRI machine or whatever? How do we pay our nurses? And so typically, what that means is they raise costs on the people who have coverage.
And what that means is health insurers raise costs for the people who are paying the premiums. And so that means, you know, more out-of-pocket costs for you and me, higher premiums, especially for small business owners. Around California there’s like four million small business owners in California.
You know, so it would be harder for people who have three employees to get coverage for them. You know, they might not be able to hire a fourth employee. A person who’s thinking of quitting their job now to start a new business might not be able to afford to do that now ’cause they won’t be able to afford a marketplace plan, those kinds of things.
And so there’s, there’s the direct effect on the healthcare industry in California, and then there’s all these indirect effects on the California economy. So a pretty urgent fiscal problem of, you know, very considerable size. And so the question was, where do you get that $100 billion?
And they asked people like me and we said, Well, a good place to get it would be from California billionaires. There’s a lot of them. They have about $2.2 trillion out of, as of the end of 2025, a little bit more today.
And we think that the economics of taxing billionaires is pretty good, right? It’s good in the sense that all taxes are kind of costly, right? Somebody’s gotta pay, and there’s gonna be some damage to the economy.
The damage is usually people change their behavior to avoid tax. But the thing is, when you’re taxing a billionaire and you’re taxing them, in the proposal, 1% a year for five years, they’re probably not gonna notice the 1%. Billionaire wealth, again, in that study by my colleagues, Emmanuel, Danny, and others, billionaire wealth has grown by an average of 7.5% since the ’80s.
So you’re talking about instead of your wealth growing at 7.5%, it’s gonna grow at 6.5% a year for a five-year period. That’s pretty comfortable, especially when you consider that the average millionaire wealth has only grown by about 2%. So billionaires are still gonna be doing three times as well annually as millionaires after paying the billionaire tax.
So it’s hard to imagine people are gonna make significant, meaningful changes to how they live their lives to avoid, you know, a small reduction in the growth of the giant pile of wealth that is too high for them ever to climb. That’s the theory. Now, you know, you might worry, “Well, what about that thing you were saying, Galle, before about how it has to be, you know, a Sixteenth Amendment, can it be income?
Is it permissible to impose a 1% annual tax on the wealth of billionaires for five years in California?” And the answer is yes because the Sixteenth Amendment only applies to Congress. It’s only about federal taxing power.
And in fact, in that opinion in 2024, where four of the conservative justices said, “Uh, I’m not sure that income includes a tax on annual changes in value.” Justice Thomas, one of the most conservative justices, wrote a separate opinion where he said, “The reason that I think this isn’t permissible at the federal level is ’cause I think the states can do it and should do it.” I, I’m not saying he was saying the states should enact a wealth tax.
What he was saying is if this were to happen, it would, you know, he thinks it would have to be at the state level.
GWYNETH SHAW:
So you mentioned the response of, of billionaires to this tax and, and what we’ve seen so far is a lot of negativity and a lot of people saying, “Oh we’re, I’m going to move out of state in order to avoid this tax.” As I understand it, this proposal has some ways to keep them from being able to do that. Could you talk a little bit about that?
BRIAN GALLE:
Yeah. I think the first and most important thing to say is talk is cheap, right? It is very easy to say, “I’m leaving.
If, if you tax me, I’m going somewhere else.” And indeed, we know it’s easy because almost every previous effort to tax millionaires and billionaires has been accompanied by lots of news stories saying they’re gonna flee. There’s a fun quote from 2012 when California enacted an extra tax on million dollar earners.
And in 2012, the California minority leader said, “There’s nothing more mobile than a millionaire and his money.” And it turns out that after that tax went into effect, California’s share of million dollar earners has increased. So maybe some of them left, but more of them came or, m– you know, California minted more millionaires in the meanwhile.
Right. So why do I think in this case, despite the noise that it’s very unlikely that a meaningful amount of kind of billionaire wealth is actually going to leave? Well, one reason is if the initiative gets on the ballot in November and if it becomes law, it’ll impose this tax that I mentioned, a 5% one-time tax or at the option of the billionaires, 1% a year over five years, on everyone who is living in California, well, everyone who is a California legal resident for tax purposes on January 1st, 2026.
So obviously, January already happened. Right? It’s, ah, it’s almost February, right?
And so it is too late for people who are threatening to leave to leave. Now there are some folks who say that, “Well, I bought a cabin in the Nevada side of Tahoe on Christmas and I’ve opened a couple of businesses in Florida, and so I’m not gonna pay the billionaire tax.” Those people are getting bad legal advice or more likely they are trying to convince voters that the initiative won’t work.
And the reason that they’re getting bad legal advice, or they’re saying things that are just not true, is because the California legal test for who’s a resident looks at kind of the whole web of your personal and business ties and it tries to figure out which state do you have the closest ties to. And so you, if you’ve been living and working in California and everyone who you associate with is in California, you don’t, you know, unravel that web by buying a cabin in Tahoe and you don’t unravel it by opening a new office in Florida when you already have 10,000 employees in Mountain View or whatever. So I think as a legal matter it’s very unlikely that, you know, any billionaire successfully, after kind of this news started to bubble in December, changed their legal residency.
GWYNETH SHAW:
How are the politics of this shaking out right now? I mean how confident are you that this is gonna end up on the ballot?
BRIAN GALLE:
I know California has you know, a pretty robust process for this and that we get a lot of propositions. What do you think is gonna happen here?
I think the best measure of whether it’s gonna succeed or not is the amount of attention that the people who would pay the tax have given it. So I wrote a couple of previous taxes for California that would have taxed, in one case I think individuals who had more than $50 million, and that was introduced by a California assemblyman. An earlier one was introduced by a California senator and neither of those got any news coverage.
Certainly it didn’t attract any Wall Street Journal op-eds and certainly no billionaires were threatening to contribute money to a new fund for affordable housing and other projects which was going to be used to defeat this, this bill. And what that tells me is the billionaires think it has a good chance of passing ’cause they’re spending real money to defeat it. But I also take that to be why they are talking so much about how devastating it’s going to be for them.
If you thought it wouldn’t pass, you probably wouldn’t be making all this noise.
GWYNETH SHAW:
Yeah. Moving back to outside of California. You know, you, over the years, have talked to a lot of politicians and policymakers from around the country about some of these concepts.
Are there other places where you see this making headway in other states or maybe at the federal level if there is a different political regime than the one we have?
BRIAN GALLE:
Right. Yeah. I mean, this administration just handed a trillion dollars to the top .1%.
Over the next 10 years, it seems unlikely that they’re going to impose new taxes on them. We’ve talked to–I and other people who are involved in the drafting of the California proposal have talked to legislators in other states. We testified in support of bills to tax the very wealthy in Vermont and in Washington State over the last couple of years, and neither of those went forward for various reasons.
I don’t know what the political situation in those states will be in the future. In Vermont, I know there was a Republican governor who left office at the end of 2024 and, you know, whether Vermont will want to revisit the tax proposal that we testified about, I don’t know. And other similar bills have periodically been introduced in other places, including New York and Illinois.
At the national level, Yeah, I mean, I think if you had a Democratic administration, let’s say in 2029, that administration is facing a lot of costs, right? There’s the immense cost just of paying for the four years of tax cuts that got enacted last summer, plus there’s the cost of restoring all of the, the science, the, the malaria prevention, you know, the, the global security, all the things that this administration, I think a Democratic administration would say, “This administration is badly damaging.” And so, all those things are gonna be costly.
Where are you gonna get the money? Again, there are a lot of, you know, rational places to start. Some of them I don’t really even talk about in the book.
There’s, you know, a world historic global agreement to tax multinational businesses, which the US is in the process of trying to submarine, and, you know, so far has failed to submarine. And there’s something of a detente right now on that front. So, you know, certainly I would say we should instead join the agreement and get our fair cut of the vast profits of global multinationals.
But my book says, you know, another rational place to get a lot of this money is from households who have, you know, more than they can spend during their current lifetime.
GWYNETH SHAW:
What haven’t I asked you about in the book that you want to talk about?
BRIAN GALLE:
Yeah, maybe one other thing that I haven’t talked about is the even more exciting part about dead people. So people maybe have heard that our estate tax doesn’t work very well. They might have heard that the, you know, the death tax died, actually briefly, and then it was gone for a year in 2010 and came back.
And most people, you know, don’t seem to mourn it. Taxes at death are not especially popular even though, in a sense, we all share the intuition it’s not fair for some people to start out life with hundreds of millions of dollars and the opportunities and power that that comes with, and some of us not to start out with this, those opportunities, indeed nearly all of us not to start out with those opportunities. And, you know, for the people who are starting out with those opportunities to not owe anything back to the society that allowed them to start life with gajillions of dollars.
So we have this intuition that that situation is unfair, that those folks should actually owe a little something back, but we also don’t like taxes at death. And so, how do we reconcile those two intuitions? And so one of the things that the book does is it says, “This system that we can use for waiting until people sell to tax them on their investment assets is also a thing that you can do to reconcile our two kind of conflicting moral intuitions about inheritances.”
And so instead of taxing people at death, you wait until the heirs sell the things that they have sold. But the key move, again, is when the heirs sell, you charge them interest for the amount of time that they’ve waited since they got that property and the amount that it’s appreciated since it was acquired by the person who left it to them. And again, because the interest meter is running while the heirs are holding the assets, they will be eager, typically, to pay tax sooner to turn off the interest, right?
So they’ll opt into paying earlier, but technically they don’t owe anything until they sell. And so that accomplishes a bunch of good things. One is, right, it takes away our kind of instinctive distaste for having the moment of death be a moment that the tax collector is showing up, and instead says the moment of tax is gonna be when the heir enjoys the fruits of what they’ve inherited.
That makes more sense. Also just as a matter of running the legal regime, it’s sometimes hard to figure out the value of what’s that, of people have inherited, and there’s nothing about the moment of death that tells us what those things are worth. So one of the many ways our current estate tax system is broken is the IRS litigates the value of inherited property.
There’s a famous litigation, for example, about the value of Michael Jackson’s estate. Right, like, the songs are amazing, he’s problematic, how much is his estate worth, right? So there was, it was a fun litigation, and the taxpayers overwhelmingly right, eat the IRS’ lunch in that litigation, right?
So the valuation ultimately out of that litigation on the Jackson estate is probably a tenth of what its real economic value is. Well, if you tax heirs instead when they sell, you know exactly what that thing is worth ’cause they just sold it. If they opt to pay sooner, you can use a valuation regime that’s a little fairer to the government.
And so, I guess the thing to say is, in the more kind of technical parts of the book, I make the point that this basic mechanism of kind of charging interest but waiting until sale solves problems in other important areas of the tax system, including the problem of inherited wealth.
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GWYNETH SHAW:
Great. Well, thank you so much for joining me, Brian. This has been a really fascinating conversation.
BRIAN GALLE:
I hope so. Thanks, Gwyneth.
GWYNETH SHAW:
And thank you, listeners. To learn more about Professor Galle and his work, please check out the show notes, which will have links to a number of things that you talked about so folks can read them for themselves. And if you enjoyed this episode, please share it, and be sure to subscribe to Voices Carry wherever you get your podcasts.
Until next time, I’m Gwyneth Shaw.
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