What would a wealth tax mean for California’s future?

The Liberty, August 2026

(This interview was conducted on July 20th. Interviewer: Hanako Cho)

 

Cho: In May you debated Professor Emmanuel Saez, the leading advocate of California’s billionaire wealth tax, on whether the state should impose it.

Dr. Laffer: The debate was held at Jarvis Hall at the University of California, Berkeley. The French call it le ventre de la bête, “the belly of the beast.” That’s where the riots took place in the 1960s. In other words, I went into their homeland and talked common sense. I think I showed them the light. I think everyone understood exactly why I oppose the wealth tax, and why I am in favor of helping the poor. I want to make the poor richer, not the rich poor.

Cho: The debate and the Q&A session ran for a solid two hours.

Dr. Laffer: They asked me for a forty-five-minute debate. I said no. I said, “I want it to be a two-hour debate so that we have so much time that everyone can say everything they ever wanted to say.” After about an hour and a half, as you can see on YouTube, we were both through. Then we went on to questions from the audience, and we took only three. We had said everything we wanted to say. That’s what you’ve got to do in these debates: get away from slogans, get away from one-liners, and get to the substance of the matter.

We didn’t yell at each other. I didn’t call him names. He didn’t call me names. It was friendly. It was a nice, civilized debate: two people respecting each other. He has a very charming French accent. I was very pleased with the outcome. He was not.

I hope you can get that debate translated so it can be shown in Japan. That is the best debate that’s been around on wealth taxes.

 

A Wealth Tax Would Bring California to Its Knees

Cho: If voters pass the wealth tax, what do you think will happen to California?

Dr. Laffer: As it stands right now, there are three groups in California that face the tax codes.

Number one, the very poor. California is a very generous welfare state. If you’re unemployed, in poverty, and so on, the best place to be that person is California, because they give you the most money. So, it attracts poor people.

If you’re very, very rich, you can underreport your income substantially, and you get the step-up in basis at death. You don’t pay any income taxes, even though the income taxes are very high in California. Sales taxes are high, but property taxes are the lowest in the nation. So, if you own property, you are especially privileged to live in California. California is very nice to poor people – really poor – and to really rich people.

The people who it’s not nice to are income earners: people who are trying to become wealthy and have to do it by earning income. Those people get nailed. They have very high income taxes, very high sales taxes. You can’t afford to buy a house unless you’re wealthy because housing prices are high.

So, California attracts the super wealthy. It attracts the super poor. And it repels those people in the middle who are trying to earn a living. They face the income taxes and the damage.

Now, what this proposition does is it goes after those super wealthy. And if it makes them repulsed and they leave the state, California then has a real problem. I don’t think that even Proposition 13, as it exists right now – and I was involved in putting it in, holding property-tax rates to 1% of market value from 2.7% – could save them from a wealth tax. Proposition 13 is the one reason California is so prosperous.

If you go to California, you can see this is not West Virginia. This is not Kentucky. This is not the center of the city of Detroit. California has the lowest property-tax rates in the nation and the largest amount of property-tax collections in the nation. That’s the Laffer Curve.

If they do the wealth tax, they will destroy the upper group and they will bring California to its knees. That’s my view.

I’ve said this before: people deserve the governments they get. And if Californians are silly enough to pass this wealth tax, they deserve the consequences. They were silly enough to pass Proposition 13, and they deserved the consequences — which was the greatest period of productivity and prosperity ever in California’s history.

I hope against hope that this amendment fails. But if it doesn’t fail, there isn’t a snowball’s chance that California will collect anything like the $100 billion net increase in tax revenues over the next five years that its advocates say it will. There will be any number of negative consequences like slower growth, higher unemployment, heightened burdens placed on the most disadvantaged, out-migration, bureaucratic excesses, that will reduce the size of other tax domains and increase the need for more welfare assistance for the newly created poverty. That’s my prediction.

Already, California’s high, high, high taxes have caused the state to have, in 2025, the second highest poverty rate in America at 17.7% (*1) and the highest unemployment rate at 5.50%, and over the past eleven years the second-largest net out-migration of aggregate adjusted gross income (AGI). This will make that worse.

(*1)Using the supplemental poverty measure the past eleven years the second-largest net out-migration of aggregate adjusted gross income (AGI). This will make that worse.

 

California Drove Out Dr. Laffer, Its Good-Luck Charm

Cho: At the debate, Professor Saez said that after Proposition 13 passed, and after tax progressivity fell dramatically under the Reagan administration, inequality in America expanded sharply and the demand for redistribution rose.

Dr. Laffer: That’s not true. When we won Proposition 13, I was never happier in my life. From 1978 till 2006 was the era of glory of California: the 28 years I was involved in. Unbelievable prosperity and growth.

But then in 1989, 1990, we started the bad stuff. It started with Proposition 98, which the teachers’ union put in: 40% of all spending has to go to schools, and then you had a couple of other things. 2005 was Schwarzenegger. When he was governor and he turned to the dark side, he proposed all sorts of things. He lost on spending limits, tenure, all this sort of stuff that was good. He lost those elections, and he turned to the bad side. And when Arnold Schwarzenegger was the biggest supporter of the left wing, I said, “I’m out of California. I’m not going to stay here.” I made the best decision of my life. I moved to Tennessee, where I’m really happy. It’s a lot nicer being in a state with no income tax than it is being in a state with a very high income tax.

Cho: A wise choice.

 

Robin Hood Was the First Redistributionist

Dr. Laffer: The wealth tax is the Robin Hood story. Robin Hood was the first redistributionist.

When you were a little child, you were told the story about the evil sheriff of Nottingham. He was bad. He taxed them a lot. He took all the money, and he was gluttonous himself. He got fatter and fatter and richer and richer, and the poor got worse and worse.

Then Robin Hood would wake up in Nottingham in the morning with all of his friends, dressed in their light-green leisure suits, curly toes in their shoes. They go into Sherwood Forest, where there was the famous forest throughway. They’d wait on that throughway. When a rich merchant came driving through the forest, they’d jump out on him. If he was a regular guy, they would take a little bitty something. If he was richer, they’d take a lot more. And if he was super, super rich, they’d take everything the guy had. They’d let him run naked back to his castle.

Don’t feel sorry for this rich person. Even though he’s naked and they’ve stolen all of what he has, once he gets back to his castle, he’s got plenty more there where it came from.

In the evening, after taxing all these rich merchants coming through the forest, they go back into Nottingham. If they found someone who was poor: “Oh my God, you’re poor. Here’s some of the wealth. We stole this from people in the forest.” If they found just a normal, everyday guy, they gave him nothing. And if they found some rich guy walking in the streets, they just might steal from him too. In other words, the more you made, the more they took; the less you make, the more they give you. It’s the complete redistribution model.

Now imagine you’re a businessperson back then. What would you do if you knew Robin Hood was waiting on that trans-forest throughway to steal whatever you had?

If you just wanted to do business, you’d provide an alternative way around the forest. The route around the forest was a lot longer, a lot more expensive. But they’d circumvent Robin Hood. So it cost them a lot more to do business. If they were modern-day people, a really rich guy would hire armed guards. We call those armed guards lawyers, accountants, special people to help you avoid taxes.

Once everyone knows Robin Hood is waiting in the forest, the people who go through the forest are so heavily armed he doesn’t get any money anymore. The ones who can’t afford to be armed go around the forest. He doesn’t get their money either. He walks back into Nottingham. He can’t help the poor. All he has done is destroy the city of Nottingham. This is the correct version, the economic version, of Robin Hood.

This becomes a sort of evolutionary fight between predator and prey. These people are preying on rich business people who produce all the wealth, and the business people are trying to escape.

The way the model always ends is when it’s you who are being attacked, you take it very seriously. The people who attack, it’s a job. “What time do I get off on my lunch break? Can I take Saturday off?” It’s a very different level of intensity.

In the wild, the lions and the antelopes are equally incentivized. The lion has to kill an antelope to live, and the antelope has to avoid the lion to live. They both are at their peak. But the wealth-taxers, the predators, are fine. If they get a wealthy guy, “Whoa, we got that bad guy.” It’s not a matter of life or death. To the wealthy guy, it is. So, the Robin Hood people are not nearly as highly motivated as the merchants who go through the forest.

It is a guaranteed failure that they will never collect the money they want. And all they will do is destroy the wealth base and the production base of the overall system.

This is something I could tell a nine-year-old on the bed. But this is important.These are common-sense, obvious stories, obvious examples of fallacies. My job is to make it so that your audience understands it in common-sense terms.

These people are modern-day Robin Hoods. We love the story. He’s dressed in green, a little feather in his hat, curly-toed shoes. He dances around in the forest. It’s a lovely children’s story. And it comes out: “Bad, bad, rich people; good, good, good, poor people. Take from those rich people. Give to the poor people there.”

If you allow economics to play a role, you will see what happens. The merchants will try to avoid the tax collectors on the trans-forest throughway. They’ll get lawyers, accountants, deferred-income specialists, favor-grabbers, lobbyists. Or they’ll leave the domain. In either way, it adds dramatically to the costs of goods and services. It reduces the volume of goods and services. And by stealing from the rich and giving to the poor, Robin Hood literally makes the poor worse off. There’s no ambiguity. This is the worst thing that could possibly happen to the poor.

Now, Professor Saez is French, as you know. And there is a beautiful example of the Robin Hood story in France. It’s the French Revolution, and Robespierre. Robespierre was the tyrannical dictator of France, trying to steal from the rich, the nobility, the monarchs. And he did. Of course it led to a huge catastrophe in France.

His friend, they were schoolmates together, was a man named Desmoulins. He lectured Robespierre. He said, “Robespierre, love is far greater than terror, and it lasts a lot longer. If you want to help the poor, don’t try to hurt the rich. Try to get a system of taxation that makes it an equitable tax system so that we create the greatest prosperity for all together.”

The story of Robespierre in the French Revolution is beautiful because Desmoulins was correct, and Robespierre was wrong. They were educated in the same school together.

As John F. Kennedy put it, no American is ever made better off by pulling a fellow American down. And we’re all made better off if ever any one of us is made better off.

If you try to hurt the rich, you will make the poor worse off. We can see that in the data. You don’t need the data. It’s common sense. You can see it in 1932 when we raised taxes on the rich and the Great Depression went into hyper overdrive. You can see it when we did the Smoot-Hawley tariff: it caused the Great Depression. You can see it throughout Johnson’s presidency, Nixon’s. You can see it when we cut tax rates on the rich, under Kennedy and under Reagan and under Trump. You can see how prosperity ensued.

So, it is not only a great story, but not only a story that can be explained to children. It is also a story that is correct. We’re all better off if every one of us is better off. The dream in this world is to help the poor, not to hurt the rich.

 

Do Not Pander to the Mob’s Jealousy or Persecute a Tiny Minority

Dr. Laffer: But that’s not what these people have done. Professor Saez and the writers of this initiative picked the one way that plays to the basest inclinations of human emotions instead of proposing good economics.

We all covet wealth, youth, good looks, good health, and fame, but to act out of jealousy, envy, and covetousness does not make for good policy. There are greedy rich people; we’ve all heard the stories. But you can’t use that as an excuse to tar with the same brush all billionaire investors. Demonizing all minorities is wrong. We should not exploit base and lowly urges that the electorate may have to enact legislation.

This wealth-tax amendment proposes a punitive tax on approximately 200 residents of California at an average tax of $500 million each. There are so few of these resident billionaire investors, and the tax is so huge that it looks a lot like persecution. Policies should be based on what people do, not on who they are. This is especially true for the four wealthiest individuals discussed at length and by name, Larry Ellison, Sergey Brin, Larry Page, and Mark Zuckerberg, who collectively could be personally liable for $50 billion (yes, that’s $12.5 billion of tax each), or about half of the total of this punitive tax. These four people are middle age to older white males, and Jewish.

The authors of this initiative picked an option that has no economics behind it, has no record of succeeding historically, and plays to the mob calling for the heads of the rich.

This is going to be on the ballot. We’ll see how far hate goes, and we’ll see how far love goes. This is a classic clash between growth and redistribution. It’s a classic clash between love and hate. It’s a classic clash between Desmoulins and Robespierre, and between Robin Hood and the forces of truth, beauty, and the American way.

 

Can the Billionaires’ Ballot Measure Win Popular Support?

Cho: The wealthy have put forward a counterproposal, which is also expected to go to the ballot. How do you see their plan?

Dr. Laffer: Rich people are really good at producing goods and services. They really produce great businesses. But they’re not good at explaining situations in the social world. Trump may be the one exception.

You’ve got that Gordon Gekko guy in the movie Wall Street. There he sits in his big car and his big castle, saying “I help all these poor people,” and it comes across as untrue.
They’re not heroes. They’re business people who respond to incentives.

Zuckerberg, when you look at him on TV, he’s not a simpatico person. He paints himself as a victim. You don’t say, “Oh my God, this poor little rich boy. He’s being persecuted by the French economist.” No.

So, when they run the campaign against this, or do the alternative, I’m afraid there’s a good chance they’ll lose. And if they lose, we then have to experience the problem of Robin Hood rather than anticipate it and preempt it.

I have made myself available to them, but I’ve not heard anything from them. I can help them far better than they can help themselves. They think that spending money will win the election.

It might help. But this is not a marketing campaign. As Ronald Reagan said many, many times: “Everyone says I’m the great communicator. That’s not really true. I just communicate great ideas.” If you want an alternative proposition, make it the correct proposition. Make it correct, and then you won’t have to worry about selling it.

 

Professor Saez Plays like the Hired Lawyer

Cho: Professor Saez must know that a wealth tax would set off capital flight.

Dr. Laffer: The reason is that his personal career is greatly advanced by this. He’s now very famous as being the economist for Bernie Sanders, Elizabeth Warren, Alexandria Ocasio-Cortez, for the wealth tax. And it’s very famous.

What he is doing now is devising all of the arguments he can possibly think of, correct or incorrect, to support his position. He is not doing an analytic professional job of analyzing what will happen. He’s trying to justify why this should be done. He is much more in the vein of a lawyer rather than in the vein of a professional economist who knows what he’s doing.

When you hire a lawyer, whether you’re guilty or not, you expect your lawyer to defend you. This economist is hired to defend the wealth tax, whether it’s right or wrong.

He’s enough of an economist that he knows this is bad. But he’s the best defender of this position. And it’s a very old tradition in economics: wealth taxes. We’ve had property taxes forever, back centuries. He is the designated defender of wealth taxes in this world today.

He’s right about saying that there is a big discrepancy between the rich and the poor.
He’s right on that. But he’s wrong on how to cure it. And he’s wrong on the consequences of his proposal.

 

Do Not Be Fooled by a ‘Mere 5%’ Wealth Tax

Cho: Professor Saez emphasizes that this is “only a 5 percent” wealth tax. How do you see that claim?

Dr. Laffer: Let me talk about the three types of taxes. I’m just caricaturing the three tax bases.

The first is value-added. The source of income is the value added created in economic activity, so in this context an income tax belongs in the value-added category. The tax base is total GDP, the sum of value added.

Then there’s something called a sales tax, a kind of transactions tax. A transactions tax is how many times goods are bought and sold in the operation: manufacturing, wholesale, retail. You can see a sales tax in some places. The base of a turnover tax is much larger than an income tax or a VAT, because it includes all the transactions. A turnover tax has a tax base something like three and a half to four times the size of an income tax.

The third tax base is wealth: the total value of assets. Compared to GDP, that number is something like 12 or 15 times the size of income. So, you’ve got an income-tax base, a transactions-tax base, and a wealth-tax base, which is very large.

It is totally inappropriate to compare a 5% wealth tax to a 5% income tax. When you look at this tax on wealth, what you should look at is the tax on the earnings of that wealth. If you have an 8% yield on wealth, which is a good yield, a 5% wealth tax reduces that 8% to 3% and will reduce the total wealth of society by more than 50%. If that rate continues into the future, the damage to assets accumulates. It will have an enormously damaging effect.

The way I like to put it is this: a 1% wealth tax is approximately equivalent to a 3 or 4% transactions tax, which is approximately equivalent to a 12 to 15% income tax. That’s the way you look at it.

To say “it’s only 5%” is totally messy. This is the classic mistake of Senator Warren of Massachusetts. She always says, “It’s only a 1% tax.” Well, it’s not a 1% on income. It’s a 1% on all wealth, which is a huge tax.

Cho: This wealth tax would tax business assets that investors have put into enterprises, stock and the rest, so the economic impact could be enormous. You have long said that labor and capital are not enemies. That complementarity seems to me extremely important. What is your view?

Dr. Laffer: This is important in the production function. Economists often use a Cobb-Douglas production function here. Output is produced by capital and labor. Capital and labor together. If you have more capital and more labor, you’ll get more output. If you have more capital and the same labor, you’ll get more output. If you have the same capital and more labor, you’ll get more output. That’s the way.

Labor and capital are complements, not substitutes. A taxicab driver without a car does not do well. A car without a taxicab driver does not do well. You need both cars and drivers to produce output. They’re friends, not enemies.

If you get more cars in the system, you’ll get more output. Labor does not benefit by attacking capital. Capital does not benefit by attacking labor. Labor and capital are friends. Anything I can do in the economy to help capital is good for labor. Anything I can do in the economy to help labor is good for capital.

Tax cuts are an equal-opportunity employer. That’s why you want the lowest possible tax rate on the broadest possible tax base, so that we get the most output we possibly can, to provide benefits to both capital and labor. That’s what we want.

Everyone knows that. The servants in a wealthy family’s home are benefited by their being servants. And hopefully they make enough money so they can save it to educate their children to become wealthy too.

Because this amendment levies taxes only on investments, there will be less capital. With less capital, wages would be lower and unemployment would be higher. The existence of the rich is far from being deleterious to the poor. Jealousy is not economics.

As a result, capital and labor should be taxed evenly, favoring neither labor nor capital: a truly flat tax.

Cho: Then does Senator Elizabeth Warren not know this basic economics?

Dr. Laffer: She does. She knows it. She doesn’t want to understand it in the political sphere. She believes that her stance is politically popular. If I sat down with Elizabeth Warren and a beer, she says she likes beer, and if we talked for a long time, just sitting there, no recorders, nothing else, she would understand. They’re just responding to political incentives.

When I talked with Emmanuel Saez, afterwards I got a letter saying that he would never debate me again. But he also said, “I believe in your flat tax. That would work, and I’d be glad to co-sponsor an article with you on the flat tax.”

If you sit down with a person long enough and get away all the fluff and frills and the screams and the hollers, and you sit down, just two people talking, they understand exactly what I’m saying.

You remember the story when I got the pillowcase full of $20 bills and went to Massachusetts. After Bernie Sanders’s speech, with Elizabeth Warren screaming and hollering, I threw it over. They picked up all the $20 bills. In ten seconds, they were all gone. Even socialists respond to incentives. Socialists will fight to the death over the pretty girl. They respond to incentives, and everyone knows that.

If you want to help the poor, provide jobs, not welfare. It’s pretty simple. If you pay people not to work, they’re not going to work. If you reward them if they do work, they will work. We all know that.

 

If You Want to Help the Poor, Implement a Flat Tax

Cho:Then what kind of tax system should we have?

Dr. Laffer: First, this wealth tax is an add-on to all current California taxes. As a first step, this wealth tax should replace other ineffective taxes. It is also inappropriate to tax flows, value-added, income, net sales, as well as wealth. That’s called double taxation, and it is universally discouraged.

What you need is a low-rate, broad-based flat tax.

If Sergey Brin’s proposal had included getting rid of the 501(c)(3) deductions in California tax codes, or taxing increases in unrealized capital gains at the time and deducting unrealized capital losses the same way, you would not have this problem. (Refer to An Interview with Dr. Laffer: The Tax Reform Needed to Turn Universities Away From Socialism.)

In the U.S. there are well over $500 billion of tax write-offs by the wealthy for contributions to 501(c)(3)s, and some 20 percent of this sum is taken on California income tax filings. Why on earth should sports leagues owned by billionaires be tax-exempt? This is a gross inequity in California’s tax laws and “costs” some $15 billion yearly on California tax revenues from wealthy 501(c)(3) donors alone. And then there’s tax-exempt earnings on assets owned by 501(c)(3)s, which adds another tax loss to California of some $15 billion a year.

I don’t want to tax unrealized capital gains. I want to tax increases in unrealized capital gains. As I have said before on the Haig-Simons definition (Refer to An Interview with Dr. Laffer: Wealth Tax Will Cause ‘Huge Reduction in Wealth,’ Dr. Laffer Explains): income is how much you spend in a period of time, how much you give away during that period of time, and the increase in your wealth during that period of time. From that definition, the “increase” in unrealized capital gains is an income item. Once it’s taxed, it’s yours. You’ll never see a tax again. And if you lose money, it’s deductible: a reduction in your income. You get your money back. And you are not taxed again at sale.

You need a low-rate, broad-based flat tax with no deductions, no exemptions, no exclusions; what I did with Jerry Brown, the former governor of California when he was running for president. If these people paid taxes on all their income, the poor would be much better off.