A new wave of wealth-tax proposals is upon us. A California ballot initiative would impose a one-time 5 percent tax on billionaire wealth. Senator Elizabeth Warren, D-MA, has reintroduced her annual wealth tax legislation. Senator Bernie Sanders, I-VT, has proposed a 5 percent yearly levy on billionaires. These proposals differ in design but share a common premise: that billionaires hold enormous wealth on which little tax is being paid.
In a recent New York Times op-ed, economists Emmanuel Saez and Gabriel Zucman argue that several California billionaires “have accumulated enormous fortunes almost tax-free.”That assertion is built on a comparison—wealth versus taxes paid—that sounds straightforward but overlooks the government’s share of the same stream of profits that creates billionaire wealth.
American billionaires pay an average effective federal rate of about 34 percent. Wealth-tax advocates argue that the true rate is lower because unrealized capital gains are not taxed as they accrue. But unrealized gains are not untaxed wealth. They are based on future business profits, which will be reduced by future taxes.
The relevant comparison is not wealth versus past taxes paid. Billionaire wealth is mostly equity, and equity's value is already reduced by the taxes governments are expected to collect.
The value of a company’s equity is based on expected future profits, not just next year, but over the entire life of the firm. For a public company, that value is reflected in its market capitalization—the stock price multiplied by the number of shares outstanding. If corporate taxes were eliminated tomorrow, the value of many public companies would rise immediately because future profits would be higher.
Consider Alphabet. The government’s share is worth far more than the combined fortunes of Sergey Brin and Larry Page, the two men who built the company. Alphabet’s market value is about $4.56 trillion. Its net income, or after-tax profit, in 2025 was $132 billion, after paying $26.7 billion in corporate taxes. Governments take their slice first, and what’s left is after-tax profit. Alphabet’s future profits, along with its market value and the wealth of its shareholders, will also be lower because of taxes.
Alphabet’s market value is about 35 times its 2025 after-tax profit. Profits and taxes are part of the same pretax earnings stream, so we can apply the same multiple of 35 to Alphabet’s taxes, $26.7 billion, to estimate the market value of future tax payments. That comes to about $935 billion.
This is a rough estimate, but it illustrates the magnitude of the government’s claim. Brin and Page together own about 12 percent of Alphabet’s total shares, worth about $547 billion—smaller than the government’s expected $935 billion share derived from future taxes.
This estimate assumes that Alphabet’s future effective tax rate will, on average, equal its current rate of about 17 percent. That is a conservative assumption. The current rate is reduced by tax benefits associated with R&D credits and stock-based compensation, which tend to be larger at rapidly growing firms. As companies mature, growth typically slows and investment declines relative to firm size, causing effective tax rates to move closer to the statutory corporate rate, currently at 21 percent. If we bake in that assumption, the value of the government’s claim would be larger than estimated here.
Saez and Zucman report that during 2020—2023, the value of Brin’s and Page’s shares increased by $133 billion. But because they did not sell their shares, those gains were not subject to tax. Yet Alphabet’s stock price rose because expectations of future profits increased. The same increase in expected future profits that raised the stock prices also raised the value of the government’s future tax take.
The question of how much to tax is an old one. Six centuries ago, the historian Ibn Khaldun observed that heavy taxation is often a symptom of decline rather than a cure for it. Reasonable people can debate the right level of taxation. But the debate should begin with a clear picture of what is already taxed.
