S7 Ep38: Do billionaires pay taxes?

Episode Summary

Executive Summary: The episode examines why measuring tax burdens on billionaires is difficult and shows that, in France, the very richest often pay relatively little personal income or wealth tax because much of their income is retained inside corporations. Using newly matched corporate-household data, the researchers estimate that corporate income tax is the main tax billionaires pay, but total effective taxation at the top can still become regressive because corporate rates are below top personal income tax rates.

Main Topics: Why billionaire taxation is hard to measure (Priority: 5/5): Standard tax-burden calculations work for most taxpayers because income and taxes are recorded at the personal level, but they break down for the ultra-rich whose wealth and income are often held through corporations rather than paid out personally. From top 1% to the ultra-rich (Priority: 5/5): As one moves from the top 1% to the 0.001%, wage income gives way to capital income and then to corporate structures that conceal the economic income actually controlled by wealthy individuals. Combining personal and corporate taxes (Priority: 5/5): The study adds personal income tax, wealth tax where relevant, and a share of corporate income tax to both the numerator and denominator in order to estimate a comprehensive effective tax rate for wealthy tax units. New matched data methodology (Priority: 4/5): A major advance is the ability to match corporate ownership records to household tax records, letting researchers attribute corporate profits and taxes to specific individuals with fewer assumptions than previous studies required. Why wealth tax had little effect on billionaires (Priority: 4/5): France’s wealth tax had major exemptions for business assets and was capped relative to taxable income, which meant it had almost no effect on billionaires with low taxable income but large corporate wealth. Policy implications and reform options (Priority: 5/5): Increasing top personal income tax rates alone would not significantly affect billionaires; a higher or redesigned corporate/wealth tax could, but corporate tax hikes may also affect broader investment and growth.

Key Arguments: For most taxpayers, tax burden is easy to compute as taxes paid divided by recorded income; for the ultra-rich, recorded personal income omits much of the income generated through controlled corporations. At the top end, much of wealth is held via firms that retain profits, so personal income tax understates the economic resources controlled by billionaires. To estimate effective taxation fairly, one must include corporate income tax because it is paid on profits ultimately accruing to wealthy owners. The research is about legal tax arrangements and incidence, not tax fraud or criminality. French billionaires in 2016 paid little personal income and wealth tax because their taxable income was small relative to their economic income, and wealth tax rules capped liability. Corporate income tax supplies most of the effective tax burden at the very top, but since corporate rates are below top personal income tax rates, the overall system remains regressive at the peak. Raising the top personal income tax rate alone would have limited impact because the ultra-rich often do not realize enough personal taxable income to be hit by it. Reintroducing a wealth tax in its 2016 form would also have limited impact because the cap and exemptions shielded billionaire wealth. A redesigned wealth tax without caps or business-asset exemptions could raise substantial revenue, though behavioral responses and constitutional constraints would matter. A better long-run fix may be integrating corporate and personal income taxation so corporate tax functions more like a prepayment of personal tax.

Data Points: France tax units: About 37 million - Estimated number of tax units in France used in the study’s framework Billionaire tax units: 75 tax units - Approximate number of billionaire tax units in the French sample Large top group size: Above 15,000 - A broader group of wealthy individuals who use corporations to own wealth Personal income and wealth tax rate at the top: Below 2% of total income - For billionaires, these taxes are very small because much income is retained in corporations Effective tax rate for French billionaires in 2016: Close to 27% - Estimated total effective rate when corporate income tax is included Corporate income tax share of billionaire taxes: Mostly the source of the 27% rate - Corporate income tax accounts for most taxes paid by the very richest Top marginal personal income tax rate: Higher than corporate income tax rate - Used to explain why the combined system becomes regressive at the top Wealth tax status: In place until 2016 - Referenced in discussing France’s former wealth tax regime

Pivotal Quotes: "It's not that they don't pay income tax, they pay corporate income tax on their profits." — Antoine Bozio: Clarifying that billionaire tax burdens come largely through corporate rather than personal taxation "The wealth tax, which is designed to say we're going to increase taxes on the billionaires, will effectively have a zero effect on billionaires." — Antoine Bozio: Explaining why the French wealth tax had little practical impact because of caps and exemptions "If you increase the top marginal tax rate on the personal income tax, that will not make a lot of difference." — Antoine Bozio: Policy discussion on why personal-rate increases would not strongly affect the ultra-rich

Implications: The episode suggests that taxing billionaires effectively requires looking beyond personal income and redesigning how corporate and wealth taxes interact. Simple hikes in top personal rates may miss the ultra-rich, while more comprehensive reforms could raise revenue but may face legal and economic trade-offs.