But the case for levies on wealth is unconvincing
June 4th 2026
Suppose you are the billionaire founder of Veblen Luxe SA, a European company selling solid-gold luggage tags. How should you organise your financial affairs? One option would be to hold your Veblen shares directly. But then you must pay income tax immediately when the company pays you dividends.
Your accountant might tell you it is wiser to put the shares in your holding company, Hespérides S.à r.l. In a holding company, dividends can pile up without triggering much of an income-tax bill. True, you cannot spend the cash. But it can still be used for investments and some expenses. If you persuade a bank to lend you your spending money against your Hespérides shares, and dividends pile up faster than your debts, you may be able to keep borrowing and postpone income taxes indefinitely.
It is such arrangements that Gabriel Zucman of the Paris School of Economics takes aim at in his short new book, “We Need to Tax Billionaires”. Mr Zucman, whom your columnist interviewed for our “Inside Economics” show, has arguably surpassed Thomas Piketty, his compatriot and erstwhile co-author, to become the favourite economist of left-wingers everywhere. His latest thesis is that holding companies allow the ultra-rich to pay taxes at far lower rates than most of the public, and even those who support flat (rather than strongly progressive) taxation should support new levies on wealth to level the playing field.
For example, in Mr Zucman’s native France holding companies enable billionaires to pay about 25% of their income in taxes, including corporate levies paid globally, he calculates. The average Frenchman, by comparison, faces an all-in effective tax rate of 51%. Mr Zucman sees this as an injustice and proposes to top up the annual tax bill of the ultra-rich to a minimum of 2% of their net worth. Last year he campaigned for such a levy in France.
Holding companies are more of a problem for European taxmen than for America’s IRS. Uncle Sam has since 1934 imposed a 20% tax on the undistributed income of personal holding companies, after public fury when J.P. Morgan, a plutocrat banker, paid no income tax for two years running. Still, Mr Zucman says this Rooseveltian fix was incomplete. He notes that Warren Buffett’s listed holding vehicle, Berkshire Hathaway, has not declared a cash dividend since 1967. Earnings pile up, free of income tax.
Wealthy Americans can also borrow against appreciating assets to fund their lifestyles. When they die, their heirs benefit from the “stepped-up basis”, which disregards all previous capital gains when shares are inherited. If assets appreciate fast enough, and profits are reinvested, in theory a dynasty can avoid income and capital-gains taxes for ever. Mr Zucman says the tax rate paid by the wealthiest 400 Americans—those appearing in the Forbes rich list—is 24%, compared with 30% for the average citizen.
Mr Zucman’s work often provokes controversy, because wealth taxes are unpopular among economists and because of regular disagreements about his data. His latest research, too, has brought about a data dispute. David Splinter of the Joint Committee on Taxation, a congressional body, says Mr Zucman and his co-authors have underestimated how much tax American billionaires pay. Mr Splinter makes different assumptions about capital gains, how Forbes fortunes are spread among family members, and state and local levies paid. He also includes transfers in income for all Americans and deducts tax credits from their tax bills. He finds billionaires’ tax rate to be 38%, and that of middle-income Americans just 18%. Mr Zucman says Mr Splinter has made mistakes.
Whatever you make of his data, Mr Zucman has identified laxity in Europe’s treatment of holding companies. He is also not the only person to note the injustice of the stepped-up basis and other loopholes like it elsewhere in the world. But is a minimum wealth tax the solution? It would be straightforward for Europe to copy America’s treatment of holding companies, and for America (and others) to fix their capital-gains taxes. Instead, Mr Zucman arrives at his 2% minimum by supposing that billionaires can expect to earn a 6% return on their fortune, so a 2% net-worth tax approximates to a 33% income tax. In reality, though, it is one thing to ask the owner of Veblen Luxe to pay 2% of his net worth. It is another to shake down startup founders, with no cash profits, based on valuations that could collapse if their business goes awry.
And would the rate stay at 2%? Mr Zucman charges that opponents of wealth taxes resemble early opponents of income taxes. Yet critics of income taxes were, in hindsight, right to warn that the tax would grow significantly over time. And plenty on the left would not stop at 2%. Odds are that California’s proposed 5% “one-time” tax on wealth will not be a one-off. From June 4th Mr Piketty can be found at the World Inequality Conference in Paris advocating a progressive global wealth tax starting at 1% annually above €2.2m ($2.5m) and rising to 20% above €553m. He has previously backed wealth taxes with top rates as high as 90%.
Crossing the Piketty line
It is unclear to what extent Mr Zucman endorses such extreme ideas. He supports experimenting with different rates. His suspicion of wealth runs deep: he says he sees little difference between those who get rich by capturing governments, like Russian oligarchs, and entrepreneurs who create new products. Wealth, he thinks, always brings dangerous political influence.
Yet the possible costs of deterring innovation are vast. Past research by William Nordhaus of Yale University has found that innovators capture for themselves just 2% of the value they provide to society; more recent work by Stefanie Stantcheva of Harvard finds that innovative effort is surprisingly responsive to tax rates. Closing tax loopholes is reasonable. Seizing the assets of society’s most productive people is a road to economic ruin. ■
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