Economist Editors Spurn Wealth Taxes, Back Consumption for AI Era

The Economist

Direct taxes on billionaires fail to raise meaningful revenue and risk asset expropriation, meaning governments must rely on broad consumption taxes and reformed capital gains to redistribute artificial intelligence windfalls.

AI-assisted summary of How to reform the tax system | The Economist — original source. Check the original for full context.

Source published: 2026-10-03

Key ideas

An Economist viewer poll shows consumption taxes (35%) and billionaire taxes (31%) as the leading proposals for funding public finances in an AI-driven economy. (0:00)
Economists argue that broad consumption taxes effectively operate as indirect wealth taxes by eroding future purchasing power, avoiding the capital flight historically triggered by direct wealth taxes. (4:54)
While the United States operates a highly progressive income tax that achieves modest redistribution, European nations achieve far greater equality through flat consumption taxes paired with robust welfare spending. (4:54)
Rather than adopting radical wealth taxes that verge on property expropriation, the panel urges reforming capital gains taxes to properly capture windfall super-profits without penalizing ordinary savers. (8:36)

Detailed notes

## Background Published on YouTube by The Economist on October 3, 2026, this panel discussion explores how governments should modernize tax policy as artificial intelligence reshapes the economy. According to the page description, the publication's top editors weigh options for raising public revenue, evaluating whether to levy taxes on consumption, compute, land, or the tech billionaires amassing fortunes from AI.

## TL;DR The panel explores how governments should adapt fiscal policy in an AI-driven economy where returns increasingly accrue to capital rather than human labor. Editors Zanny Minton Beddoes, Tom, and Henry Curr evaluate the trade-offs between simplicity, efficiency, and progressivity, arguing that tax systems work best when broad, efficient levies are paired with robust redistribution on the spending side. While recognizing the populist appeal of targeting billionaires, the speakers caution against direct wealth taxes, highlighting historical failures, capital flight, and the risks of property expropriation. Instead, they advocate for a pragmatic composite of broad-based consumption taxes, non-distortive land value taxation, and targeted reforms to capital gains rules to capture runaway tech windfalls.

## Atmosphere & style The discussion carries the polished, intellectually brisk ambiance characteristic of The Economist's editorial board, blending rigorous macroeconomic theory with dry, urbane humor. The rapport between Zanny Minton Beddoes, Henry Curr, and Tom is collegial and fluid, seamlessly shifting from historical maxims about plucking geese to personal frustrations with bureaucratic tax filing. Rather than getting swept up in populist rhetoric, the tone remains detached, measured, and analytical, dissecting radical tax ideas with calm skepticism and a pragmatic commitment to economic efficiency.

## Bulletin - [00:00](https://www.youtube.com/watch?v=e9OAazrjenc&t=0s) An Economist viewer poll shows consumption taxes (35%) and billionaire taxes (31%) as the leading proposals for funding public finances in an AI-driven economy. - [04:54](https://www.youtube.com/watch?v=e9OAazrjenc&t=294s) Economists argue that broad consumption taxes effectively operate as indirect wealth taxes by eroding future purchasing power, avoiding the capital flight historically triggered by direct wealth taxes. - [04:54](https://www.youtube.com/watch?v=e9OAazrjenc&t=294s) While the United States operates a highly progressive income tax that achieves modest redistribution, European nations achieve far greater equality through flat consumption taxes paired with robust welfare spending. - [08:36](https://www.youtube.com/watch?v=e9OAazrjenc&t=516s) Rather than adopting radical wealth taxes that verge on property expropriation, the panel urges reforming capital gains taxes to properly capture windfall super-profits without penalizing ordinary savers.

## Key takeaways - [00:00](https://www.youtube.com/watch?v=e9OAazrjenc&t=0s) A viewer poll on taxing the AI era ranked consumption taxes first at 35%, followed by billionaires at 31%, compute at 19%, robots at 9%, and land at 5%. - [00:00](https://www.youtube.com/watch?v=e9OAazrjenc&t=0s) Targeting billionaires directly provides minimal revenue stability because the ultra-rich possess mobile assets and can easily relocate across jurisdictions. - [00:00](https://www.youtube.com/watch?v=e9OAazrjenc&t=0s) A balanced tax regime in an AI era should combine broad consumption taxes, moderate capital levies, and higher land taxes on immobile, scarce property. - [02:00](https://www.youtube.com/watch?v=e9OAazrjenc&t=120s) The primary objectives of any tax architecture are funding public services and redistributing income based on political priorities. - [02:00](https://www.youtube.com/watch?v=e9OAazrjenc&t=120s) Tax design relies on three core tenets—simplicity, efficiency, and progressivity—which often exist in direct tension with one another. - [02:00](https://www.youtube.com/watch?v=e9OAazrjenc&t=120s) Policymakers should evaluate the tax and transfer system holistically rather than forcing every single tax instrument to fulfill all three design criteria simultaneously. - [02:00](https://www.youtube.com/watch?v=e9OAazrjenc&t=120s) If AI drives returns to human labor close to zero, public finances will be compelled to extract revenue where economic returns accumulate: capital. - [04:54](https://www.youtube.com/watch?v=e9OAazrjenc&t=294s) Raising consumption taxes indirectly levies wealth by reducing the real purchasing power of accumulated fortunes by that same percentage. - [04:54](https://www.youtube.com/watch?v=e9OAazrjenc&t=294s) The central justification for wealth taxes, championed by economists like Gabriel Zucman, is political rather than fiscal: curbing oligarchical lobbying and corporate dominance. - [04:54](https://www.youtube.com/watch?v=e9OAazrjenc&t=294s) Direct wealth taxes have historically been discarded by developed nations due to immense administrative overhead and accelerated capital flight. - [04:54](https://www.youtube.com/watch?v=e9OAazrjenc&t=294s) Tax policy cannot be judged independently of government expenditure; European redistribution succeeds via social transfers rather than narrow, progressive tax carve-outs. - [08:36](https://www.youtube.com/watch?v=e9OAazrjenc&t=516s) Direct wealth confiscation lacks natural boundaries and creates a slippery slope toward unchecked property expropriation, as exemplified by California's proposed wealth tax. - [08:36](https://www.youtube.com/watch?v=e9OAazrjenc&t=516s) Current capital gains rules are economically distorted, undertaxing massive windfall super-profits from tech ventures while overtaxing ordinary savings. - [08:36](https://www.youtube.com/watch?v=e9OAazrjenc&t=516s) Restructuring existing capital gains taxes offers a far more pragmatic and fair solution than introducing experimental wealth taxes.

## Detailed walkthrough ### [00:00](https://www.youtube.com/watch?v=e9OAazrjenc&t=0s) Viewer Poll: What Should Be Taxed in the AI Era?

The discussion opens with the results of a viewer poll asking how taxes should be levied as artificial intelligence reshapes the economy. The options and their respective shares of the vote were:

- **Consumption:** 35% - **Billionaires:** 31% - **Compute:** 19% - **Robots:** 9% - **Land:** 5%

Reacting to the tally, Zanny Minton Beddoes praises the audience as thoughtful and well-informed, noting that economists broadly view consumption taxes as an exceptionally efficient mechanism for raising revenue. A consumption tax can be structured progressively through welfare transfers or large threshold exemptions before any tax kicks in. However, she argues that relying exclusively on consumption taxes is politically untenable in an AI-driven economy where vast, unprecedented returns accrue to capital and its owners.

While Zanny hopes "billionaires" serves as popular shorthand for taxes on capital more broadly, she cautions against relying on targeted billionaire taxes. Though politically popular, taxing billionaires directly yields relatively little revenue, and the ultra-wealthy are hyper-mobile and easily relocate their assets. Her own ideal composite would rely heavily on consumption taxes, paired with moderate capital taxation and a significantly higher emphasis on land taxes, treating land as a scarce and readily taxable commodity. She also highlights that this shift would represent a far more dramatic transformation for the United States than for Europe, where value-added and consumption taxes already account for a major portion of public revenue.

[02:00](https://www.youtube.com/watch?v=e9OAazrjenc&t=120s) Principles of an Ideal Tax System

Turning to foundational theory, the panel explores what constitutes a well-designed tax framework. Tom outlines the two primary purposes of any tax system: first, raising sufficient revenue to fund public services, and second, enabling redistribution from the richest to the poorest depending on the governing political priorities. To achieve these goals, economists traditionally lean on three guiding principles:

- **Simplicity:** Tax codes must avoid onerous administrative burdens. Tom recalls his own experience living in the United States, spending hours untangling tax returns trying to determine eligibility for various overlapping credits. - **Efficiency:** Taxes should minimize economic distortions by treating different forms of economic activity equally rather than penalizing or encouraging specific choices. - **Progressivity:** Those reaping the greatest financial windfalls from technological shifts, such as AI, should shoulder a proportionately higher tax burden.

```mermaid flowchart TD accTitle: Holistic Tax and Spending Framework accDescr: Diagram illustrating how tax instruments, core design goals, and spending interact across the whole economy.

subgraph Revenue["Tax Instruments"] C["Consumption Tax\n(Broad Base)"] K["Capital & Wealth Tax\n(Progressive)"] L["Land Value Tax\n(Non-Distortive)"] end

subgraph CoreGoals["System Goals"] R["Revenue Maximization"] E["Economic Efficiency"] S["Simplicity & Transparency"] end

subgraph State["Spending & Redistribution"] W["Welfare & Public Services"] P["Net Progressivity"] end

C --> R L --> E K --> P R --> W W --> P ```

Zanny notes that these three goals are frequently in tension with one another, invoking Jean-Baptiste Colbert’s famous adage that the art of taxation consists in plucking the goose to obtain the largest possible amount of feathers with the smallest possible amount of hissing. In an AI scenario where returns to human labor collapse toward zero, tax collectors must inevitably go where the wealth resides: capital returns. While widespread AI assistance might theoretically reduce the friction of personal tax filing by automating optimization, she insists that simplicity remains essential. Tom adds that policymakers often err by demanding that every individual tax levy meet all three criteria at once. A rational system looks at the balance as a whole—using broad consumption taxes to generate massive baseline revenue, targeted capital taxes for equity, and social spending to compensate lower-income households.

[04:54](https://www.youtube.com/watch?v=e9OAazrjenc&t=294s) Consumption Taxes, Progressivity, and the Case of Wealth Taxes

Henry Curr challenges the assumption that consumption taxes are inherently regressive, arguing they are unfairly maligned. If a government increases the consumption tax rate by five percentage points, it diminishes the real purchasing power of an ultra-wealthy individual's accumulated fortune by five percent, effectively functioning like an indirect wealth tax. Because the ultimate economic purpose of a fortune is spending, raising consumption taxes clips that wealth at the register.

Henry contrasts this economic view with that of French economist Gabriel Zucman, a leading proponent of wealth taxes whom Henry interviewed for *Inside Economics*. Zucman’s case for a direct wealth tax rests not solely on fiscal efficiency, but on neutralizing political power: fortunes left unspent are deployed to lobby politicians, purchase competitors, and sway democratic institutions. While Henry acknowledges this political argument as respectable, he remains unconvinced that wealth taxes work in practice, noting that historical attempts across developed nations have repeatedly been abandoned because of capital flight and implementation difficulties.

Zanny and Tom emphasize that the debate cannot separate taxation from public expenditure. The United States already possesses an extraordinarily progressive federal income tax, where the top 1% pays a massive share of total collections; yet the overall US system achieves far less redistribution than European countries. European nations rely heavily on flat consumption taxes, but maintain larger states that redistribute far more cash and services on the spending side. When economists draft a tax reform blueprint on a clean sheet of paper—an exercise Zanny jokes guarantees it will never be enacted into law—they must first define the expected size of the state and its spending mandate. Attempting to achieve progressivity solely by layering carve-outs and special rules onto the tax code invariably destroys simplicity, leaving systems bloated and inefficient.

[08:36](https://www.youtube.com/watch?v=e9OAazrjenc&t=516s) The Limits of Redistribution and Fixing Capital Gains

The debate over wealth taxes centers on whether curbing the outsized power of tech tycoons justifies unprecedented state intervention. One speaker weighs the political justification for such measures—specifically the fear that billionaires wield excessive political influence and entrench a self-perpetuating oligarchy at the expense of a meritocratic society. While acknowledging that a society pushed to a dystopian extreme might eventually need to pull that lever, the speaker remains unconvinced that matters have deteriorated to such a desperate point: "I think you have to get to a really bad place, and I'm not convinced that society's there yet."

From a purely economic standpoint, redistributing wealth through direct confiscation poses a severe slippery slope. The underlying principle has "no natural limit," meaning political pressure will inevitably push the boundary as far as possible. Proposals currently being floated, such as the wealth tax under discussion in California, edge dangerously close to the outright "expropriation of property," setting a precedent described as "quite chilling." Consequently, radical wealth taxes fail to convince on both practical and philosophical grounds.

Rather than inventing novel levies destined to misfire, policymakers should look at fixing existing mechanisms like capital gains tax. The current framework is notoriously tangled and structurally warped: it systematically undertaxes astronomical windfall profits—precisely the mega-returns that artificial intelligence billionaires stand to rake in—while unfairly penalizing the modest, normal gains accumulated by ordinary savers. Leveling that playing field and reforming capital gains offers a far more pragmatic and equitable path forward than rushing into an experimental wealth tax regime.

- **The slippery slope of redistribution:** Without a built-in threshold, using the tax code to redistribute wealth invites unending political escalation toward asset seizure. - **The California wealth tax proposal:** Viewed critically by the panel as bordering on property expropriation. - **Capital gains asymmetry:** Current rules distort incentives by overtaxing standard savings returns while undertaxing runaway super-profits generated by tech windfalls.

## Notable quotes > [02:00](https://www.youtube.com/watch?v=e9OAazrjenc&t=120s) plucking the goose to obtain the largest possible amount of feathers with the smallest possible amount of hissing — Zanny Minton Beddoes

> [08:36](https://www.youtube.com/watch?v=e9OAazrjenc&t=516s) I think you have to get to a really bad place, and I'm not convinced that society's there yet.

> [08:36](https://www.youtube.com/watch?v=e9OAazrjenc&t=516s) no natural limit

> [08:36](https://www.youtube.com/watch?v=e9OAazrjenc&t=516s) expropriation of property

> [08:36](https://www.youtube.com/watch?v=e9OAazrjenc&t=516s) quite chilling

## Mentioned Zanny Minton Beddoes, Tom, Henry Curr, Gabriel Zucman, Jean-Baptiste Colbert, Inside Economics, The Economist, United States, Europe, California

## Video description As AI transforms the economy, governments will need new ways to raise money. Should they tax consumption, compute, land or the billionaires getting richer from the technology? Our top editors weigh up the options.

#AI #Tax #WealthTax

00:00 What should be taxed in the AI era? 02:00 The ideal tax system 04:54 Are consumption taxes unfair? 08:13 Are wealth taxes a good idea?

Watch the full show: bit.ly/3Voqh0w Sign up to the Insider newsletter: https://econ.st/4nOyzIb

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[Source](https://www.youtube.com/watch?v=e9OAazrjenc)

中文简报

《经济学人》编辑摒弃财富税，主张在AI时代倚重消费税直接对亿万富翁征税无法带来可观收入且存在资产剥夺风险，这意味着政府必须依靠广泛的消费税和改革后的资本利得税来对人工智能带来的意外财富进行再分配。专家小组探讨了在收益日益流向资本而非人类劳动的AI驱动型经济中，政府应如何调整财政政策。编辑Zanny Minton Beddoes、Tom和Henry Curr权衡了税制的简明性、效率与累进性，认为当广泛、高效的税收与支出端强有力的再分配相结合时，税收体系的效果最佳。尽管发言者承认针对亿万富翁征税具有民粹主义吸引力，但他们对直接财富税提出告诫，强调了历史上的失败教训、资本外逃以及财产剥夺的风险。相反，他们主张采取务实的组合方案，通过基础广泛的消费税、非扭曲性的土地价值税以及对资本利得规则的定向改革，来合理汲取科技行业带来的飞速增长的巨额财富。《经济学人》的一项受众民调显示，在AI驱动型经济中为公共财政筹资的各项提议中，消费税（35%）和亿万富翁税（31%）位列前茅。 (0:00) 经济学家指出，广泛的消费税通过削弱未来的购买力，实际上起到了间接财富税的作用，同时避免了直接财富税在历史上引发的资本外逃。 (4:54) 尽管美国实行高度累进的所得税制，但再分配效果有限；相比之下，欧洲国家通过单一消费税配合强有力的福利支出，实现了高得多的平等程度。 (4:54) 专家小组敦促改革资本利得税，以便在不惩罚普通储蓄者的情况下合理获取意外暴利，而不是采取近乎财产剥夺的激进财富税。 (8:36)

Reading summary

Editors at The Economist argue that reforming tax systems for an AI-driven economy requires relying on broad consumption taxes, land value levies, and overhauled capital gains taxes, rather than pursuing distortionary wealth taxes that risk capital flight and property expropriation. Foundational Principles and System-Wide Balance (2:00) An effective tax framework rests on three primary criteria: administrative simplicity, economic efficiency through minimal distortion, and progressivity. Panelist Tom notes that policymakers frequently make the mistake of demanding that every individual tax satisfy all three objectives at once. This practice leads to overlapping credits and compliance burdens, as seen in the United States tax code. Economists instead recommend evaluating the tax and transfer architecture as a unified system, where broad, efficient levies generate baseline revenue while spending programs deliver progressive redistribution. Zanny Minton Beddoes highlights the perpetual tension among these goals, citing Jean-Baptiste Colbert's maxim that taxation is the art of plucking the goose to obtain the maximum feathers with the minimum hissing. In an artificial intelligence scenario where returns to human labor could collapse toward zero, public finances must target capital returns where wealth concentrates. Even if AI tools eventually simplify tax filing, Beddoes insists that simplicity and broad bases remain vital to prevent bureaucratic bloat. Rethinking Consumption Taxes and Public Spending (4:54) Henry Curr challenges the view that consumption taxes are inherently regressive, arguing they function as an indirect wealth levy. Because the ultimate economic purpose of accumulated wealth is spending, raising a consumption tax by five percentage points reduces the real purchasing power of an ultra-wealthy individual's fortune by five percent at the point of sale. Consumption taxes can also be made progressive through exemption thresholds and social transfers. The panel underscores that taxation cannot be evaluated in isolation from state expenditure. Although the United States maintains a steeply progressive federal income tax, in which the top 1% pays a massive share of total collections, it achieves substantially less redistribution than European economies. European nations rely on flat consumption and value-added taxes to fund larger public sectors that redistribute cash and services directly through the spending side. Pitfalls of Direct Wealth Taxation (8:36) While French economist Gabriel Zucman advocates for direct wealth taxes to prevent billionaires from converting fortunes into outsized political influence and market dominance, Curr notes that historical wealth taxes across developed nations have repeatedly been abandoned due to capital flight and administrative friction. The panel further warns that direct wealth redistribution lacks a natural stopping point, creating a slippery slope toward political escalation. Proposals such as California's wealth tax approach what the panel characterizes as the expropriation of property. Although speakers acknowledge that extreme societal decay or entrenched oligarchy might theoretically warrant radical intervention, they argue society has not reached a point that justifies such chilling precedents. Fixing Capital Gains and Land Value (0:00) Rather than designing experimental levies on robots, compute, or net wealth, the panel urges reform of existing capital gains taxes. The current framework is structurally warped: it undertaxes runaway windfall profits earned by tech founders while penalizing the ordinary gains of regular savers. Equalizing these rules would capture windfalls from technological transformation without penalizing standard capital formation. Addressing an audience poll where consumption (35%) and billionaires (31%) led compute (19%), robots (9%), and land (5%), Beddoes notes that directly taxing mobile billionaires generates little revenue. Her proposed composite pairs consumption taxes with moderate capital taxes and an expanded reliance on land taxes. Because land is scarce and immobile, taxing its value provides an efficient, non-distortive source of public revenue. The source concludes that layering complex carve-outs onto tax codes to manufacture progressivity destroys efficiency and simplicity. The central unresolved challenge is whether democratic governments can politically enact broad consumption and land taxes alongside capital gains reforms before technological windfalls further concentrate wealth.

Source quotes

[2:00] Zanny Minton Beddoes: plucking the goose to obtain the largest possible amount of feathers with the smallest possible amount of hissing [8:36] I think you have to get to a really bad place, and I'm not convinced that society's there yet. [8:36] no natural limit [8:36] expropriation of property [8:36] quite chilling

Original transcript

[0:00] We asked you, um, the viewer, um, how [0:03] uh, you think taxes ought to be um, [0:06] levied and here we have your answers. [0:10] So, we asked what should what should be [0:11] taxed in the era of AI? [0:14] And we have 35% saying consumption, 31% [0:18] saying billionaires, 19 compute, nine [0:22] robots, and only five on land. Zanny, [0:26] what do you make of that? [0:27] >> Well, I think as ever we have an [0:28] extremely, you know, well-informed and [0:31] thoughtful and and and great audience. I [0:33] completely agree with them. You know, [0:34] the consumption is what economists [0:37] broadly think is an extremely efficient [0:39] way uh, to raise tax revenue. You tax [0:41] consumption and you can actually make it [0:42] progressive by having, you know, a you [0:45] can either through the through welfare [0:47] spending or by having large exemptions, [0:49] um, for before you start paying a [0:51] consumption tax. So, you can make a [0:52] consumption tax progressive. However, [0:55] I actually don't think it is politically [0:57] feasible in the world we're talking [1:00] about where there's going to be huge [1:01] returns. We're not quite sure to whom, [1:04] but to capital and to the owners of that [1:06] capital to only be taxing consumption. [1:08] So, although I'm I think billionaires is [1:11] I hope is sort of shorthand broadly for [1:12] taxes on capital. Um, I think there will [1:14] be taxes on capital, too. Um, again, [1:17] billionaires is a very politically [1:19] attractive tax. You don't actually raise [1:20] that much, um, [1:22] uh, and they're very mobile and they can [1:23] find places to move to and so forth and [1:25] so forth. So, that's not necessarily I'm [1:27] not advocating a billionaire tax, but I [1:29] do think broadly a much more consumption [1:31] tax focused system with some taxation of [1:35] capital. And I would put land higher up. [1:36] I'm, you know, I still believe in, uh, [1:39] land as a scarce commodity or something [1:40] that is usefully uh, and effectively [1:42] taxed, but that would be my composite. [1:45] And it's worth remembering that that [1:47] means the biggest change in the US which [1:49] taxes consumption less relative than [1:51] Europe. Europe raises a lot of revenue [1:53] already from consumption taxes. So, the [1:55] the shift is bigger where I am sitting [1:57] right now uh, than anywhere else. [2:00] >> Okay, I want to go come to it sort of [2:02] each of those elements in a bit more [2:03] detail later, but before we do, [2:06] Tom, just start at the very, very kind [2:09] of theoretical stage. What what is a [2:12] good tax system? What are its [2:13] characteristics? [2:15] >> Yeah, of course. I think first off we [2:16] got to think what is a tax system for, [2:18] and I think there are probably two two [2:19] big reasons. One is to raise revenue, [2:21] and we shouldn't forget that to fund [2:23] public services. You need to be able to [2:24] raise enough revenue. And the second is [2:26] potentially, depending on the political [2:28] color of the government, redistribution. [2:30] So helping the poorest and maybe taking [2:31] some of it away from the richest. How [2:33] you do that, there are a set of good [2:35] principles to think about. Simplicity. [2:37] You don't want to have like I When I was [2:39] in America for a couple of years, [2:41] spending hours of my life filling out [2:42] that tax return trying to work out if I [2:43] qualified for this credit or that [2:45] credit, that is not good. You want to [2:47] have a simple tax system. You want to [2:48] have an efficient one. Well, that is a [2:50] word. What's that mean? I think what [2:51] that means is you want to tax activity [2:53] in a way that minimizes the number of [2:56] distortions, and you want to tax [2:58] different sorts of activity the same. So [3:00] you don't want to encourage people to do [3:01] one thing and not another. And then [3:02] progressivity. If you think billionaires [3:04] are going to make lots of money out of [3:05] AI, they should probably pay more tax. [3:08] >> Sandy, how does does does AI change that [3:12] sort of theoretical optimum for you in [3:15] in any way? How does it skew the sort [3:17] of, you know, ancient picture of how one [3:19] should do this? [3:21] >> I don't think it changes the, you know, [3:23] the basic three goals. And it's worth [3:26] pointing out that those three goals, as [3:28] as Thomas described them again, are are [3:30] somewhat at odds with each other. But [3:32] the sort of basic, you know, you want to [3:33] extract What was it? The the revenue [3:35] with the pull pluck the feathers with [3:37] minimal hissing. [3:38] >> Minimal hissing. Colbert, wasn't it? I [3:40] think. [3:41] >> Colbert, yeah. No, Colbert Colbert set [3:42] it up properly. And you you want minimal [3:44] hissing, so you want it to be efficient. [3:46] You don't want it to be concentrated. [3:48] You You don't want activity to be [3:50] distorted. Now, if we're in the world [3:52] where there's zero returns to labor, [3:55] then you're optimizing for where the [3:57] returns, you know, what you got to go [3:58] where the money is. Um, but you still [4:00] want to do it, I think, with minimal [4:03] distortions, maximum simplicity. I I [4:05] guess AI [4:07] makes the focus on simplicity less [4:09] important for the reasons that we've [4:11] just talked about. If you can, you know, [4:12] if you can use your AI to optimize your [4:15] or minimize your tax bill, you probably [4:17] don't have such costs from complexity. [4:20] Nonetheless, I would still be in favor [4:21] of a very simple tax system. [4:23] >> Um, can I just add in in on that? One of [4:26] the things that I think people mis- get, [4:28] you know, get confused about when they [4:29] talk about taxes is they want all those [4:30] principles to be achieved by each [4:32] individual tax, whereas really what you [4:34] want to do is think about the system as [4:35] a whole. So, you might use your [4:36] consumption tax to raise lots of money, [4:38] but you might use your billionaires tax [4:40] or whatever that's going to look like as [4:42] your progressive element of it, and then [4:44] you might redistribute some of that [4:46] money to the poorest if they lose out [4:47] from the consumption tax. So, you don't [4:49] need to hit every single goal with every [4:50] single tax, and that's one of the big [4:51] problems we've had that's got us into [4:53] this mess in the first place. [4:53] >> Although, I think I do think consumption [4:55] taxes are pretty unfairly maligned on [4:57] this progressivity point. Lots of people [4:58] have that model in their head. [4:59] Consumption taxes flat, not progressive, [5:02] uh, so you need, uh, [5:04] more redistributive taxes on top. You [5:06] know, if you're worried about [5:07] billionaires having lots of money, then [5:09] if I increase my consumption tax by five [5:11] percentage points, I have by five [5:13] percent reduced the economic value of a [5:15] billionaire's fortune. Because what's [5:16] good goods a fortune, what is a fortune [5:19] good for? It's good for spending. So, [5:21] from a purely economic point of view, [5:22] uh, putting up the consumption tax is a [5:24] bit like, uh, a wealth tax. But, if you [5:27] put that to someone like, uh, Gabriel [5:29] Zucman, who I interviewed for Inside [5:30] Economics, big advocate of wealth taxes, [5:32] he says the reason you need the wealth [5:33] tax is because of the political power [5:35] that comes with fortunes. It's not just [5:37] about the economics. Uh, where where you [5:40] do actually get a get a fortunes by [5:41] taxing consumption, because if you never [5:43] spend your fortune, you know, what good [5:44] is Is good is it? He says it's good for [5:46] influencing politics, buying up your [5:48] competitors and so on. And that's why [5:50] you need the [5:51] uh the the tax system, which is a you [5:53] know, a respect respectable argument, [5:55] but not a purely economic one. [5:56] >> Is that it? [5:57] >> Yeah, I think I think well, both Tom and [5:59] Henry make important points, but but [6:00] Tom's point about it's important not [6:02] just to look at individual taxes, but [6:03] the overall tax system. And not just, [6:06] frankly, to look at the tax system, but [6:07] also to look at the tax and redistrib- [6:10] redistribution system. Because if you [6:11] look only at taxes, it you know, the US [6:15] income tax system is extraordinarily [6:17] progressive, actually. And I I don't [6:18] remember the exact share of income tax [6:21] that's paid for by the wealthiest 1%, [6:22] but it's extremely high. Um [6:25] overall, there is less redistribution in [6:27] the US than there is in many places in [6:28] Europe, even though in Europe, countries [6:30] rely on the less progressive consumption [6:32] tax. And that's because the state is [6:34] bigger and does more redistribution. So, [6:37] we're making our lives a bit more [6:38] complicated here, but it's it's it's [6:40] actually too simple just to say, "What [6:42] is the optimal tax system?" We need to [6:44] think about what is the optimal tax [6:46] system and spending system to achieve [6:48] the overall balance that we'd like [6:50] between progressivity, efficiency, and [6:53] and transparency. But, [6:55] where the kind of exam question we've [6:57] set ourselves, and I think rightly, is [6:59] that there will be pressure to reform [7:02] taxes because we're just governments are [7:04] not going to be able to raise the [7:05] revenue they need from the current [7:07] system. Plus, on top of it, it's [7:09] anti-growth and distortive. But, it's [7:11] when when we're thinking about when we [7:12] get our blank sheet of paper out and we [7:14] say, you know, "The Economist tax [7:15] reform, here it is." Which, by the way, [7:17] will ensure that it never goes anywhere, [7:19] but [7:20] >> [laughter] [7:22] >> if we're if we're doing that, I think we [7:24] have to sort of [7:25] we have to ask ask ourselves, are we [7:27] assuming that, you know, the size of the [7:29] state stays the same? So, if you're in [7:30] France, what's the optimal tax system [7:32] for France relative to the United [7:34] States? What are we assuming happens on [7:36] the spending side? And and only once [7:38] we've answered those questions, can we [7:40] then, I think, be really, really [7:42] definitive about what kind of tax system [7:44] we want? [7:45] >> And this also brings out, I think, how [7:46] what [7:47] what Danny said earlier was true, that [7:49] progressivity and simpli- simplicity can [7:51] be in tension, because you can do loads [7:54] of redistribution on the spending side [7:56] and keep the tax side quite flat, but [7:58] people really, really want the tax [7:59] system to be progressive. And [8:02] every time you do a tax change, people [8:04] want it to get more progressive, and so [8:06] they end up coming with with more and [8:07] more complicated ways to do that, and [8:09] you end up with a complex system. So, [8:11] that that that trade-off is is [8:13] difficult. [8:13] >> Did did Zucman convince you that wealth [8:16] taxes are a good idea? [8:18] >> No, I wouldn't say so, no. [8:19] >> I mean, the history of them is that [8:21] countries that try them tend to abandon [8:22] them. [8:23] >> Yes, absolutely. And as I think you said [8:25] earlier, [8:26] billionaires tend to be very mobile. I'm [8:29] not personally convinced that [8:30] billionaire political power is out of [8:32] control. If I were to ever support a [8:34] wealth tax, it would be [8:36] on the basis that that billionaires had [8:38] excessive political power, and on on the [8:42] basis that you were getting a kind of [8:43] elite that reproduces itself, rather [8:45] than a meritocratic society. I think [8:47] once you're pushed to an extreme, you [8:49] you you should be willing to do that, [8:51] but I think you have to get to a really [8:52] bad place. And I'm I'm not convinced [8:54] that society's there there yet. And on [8:56] the pure economics of it, you know, I do [8:58] think there's a problem with [8:59] redistributing through the tax system, [9:01] that there's no the principle you should [9:02] redistribute through the tax system has [9:04] no natural limit. People will always [9:06] want to push it as far as it can go, and [9:07] wealth taxes, certainly the kind that's [9:09] on the table in California, it looks a [9:11] lot like just the expropriation of [9:14] property in some respects, and I think [9:16] that's quite chilling. So, [9:18] so no, he didn't convince me. [9:19] >> I I think also that we we do have some [9:21] wealth-related taxes already, like [9:23] capital gains tax, and instead of [9:24] focusing on new ones that aren't going [9:26] to work, we should focus on making the [9:27] ones that we do have better. So, capital [9:29] gains taxes are very complicated, but [9:31] they tend to under tax really large [9:34] returns, the sorts of returns that AI [9:36] billionaires might make, and overtax [9:38] normal returns that a saver might make. [9:39] So, reforming that, making that fairer, [9:41] might be a better starting point than [9:43] introducing a brand new tax.