Key facts
- Nobel Prize-winning economist Daron Acemoglu explained his backing of California's Proposition 40, a one-time 5% tax on billionaires.
- Acemoglu stated the tax is justifiable due to tax avoidance by the wealthy, their political influence, and potential for federal reform.
- The letter supporting Proposition 40 was also signed by Nobel laureates Abhijit Banerjee, Peter Diamond, Esther Duflo, Paul Krugman, and Joseph Stiglitz.
- Proposition 40 is estimated to raise about $100 billion from California's approximately 250 billionaires.
- The wealth of these billionaires is estimated at $2.3 trillion, more than triple the amount held by the wealthiest 0.001% a decade ago.
Nobel Prize-winning economist Daron Acemoglu explained his support for California's Proposition 40, a proposed one-time 5% tax on billionaires, in a post on X on Wednesday. The letter backing the proposition, published on Saturday, was also signed by fellow Nobel laureates Abhijit Banerjee, Peter Diamond, Esther Duflo, Paul Krugman, and Joseph Stiglitz. They described the vote as the first opportunity for the public to begin reining in the power of billionaires.
Acemoglu stated that while he is not convinced permanent wealth taxes are necessary in an optimal tax system, the current US system is far from it, particularly due to its heavier taxation of labor income compared to capital income. He noted that wealthy business owners can reduce their tax bills by receiving compensation in stock and borrowing against their holdings. Acemoglu also argued that the tax code favors spending on machinery and AI over hiring workers.
He outlined three grounds for justifying a temporary wealth tax: it partially reverses over two decades of tax avoidance by the very wealthy, it acts as a brake on their growing dominance over the political process, and it may pave the way for more comprehensive federal tax reform.
The letter estimates that Proposition 40 could generate approximately $100 billion from California's roughly 250 billionaires, whose collective wealth is $2.3 trillion. This is more than triple the wealth held by the state's wealthiest 0.001% a decade ago.
Opposition to the proposal has come from tech billionaires, with Google cofounder Sergey Brin contributing $102 million to a campaign against Proposition 40. Acemoglu acknowledged that the measure is not perfect, noting that a federal tax would reduce capital-flight risk and fewer revenue restrictions would allow for more flexible government use. However, he concluded that California's proposal deserves support due to its potential to recover lost revenue, restrain extreme wealth's political power, and spur broader federal reform.