Not surprisingly, American billionaires have dismissed recent wealth-tax proposals as an affront to the entrepreneurial spirit to which they attribute their massive wealth. But the ultra-rich never would have their great wealth without legal subsidies from the state and reliable enforcement by the courts.
NEW YORK – Economic inequality has moved to the top of the political agenda in many countries, including free-market poster children like the United States and the United Kingdom. The issue is mobilizing the left and causing headaches on the right, where wealth has long been viewed as worthy of celebration, not as demanding justification.
But today’s concentrations of wealth do demand justification. In 2018, Forbes listed three billionaires among its top ten most powerful people in the world. Next to the heads of states of Chinese President Xi Jinping, Russian President Vladimir Putin, US President Donald Trump, and German Chancellor Angela Merkel, one finds not only the Pope, but also Amazon founder Jeff Bezos, Microsoft co-founder Bill Gates, and Google co-founder Larry Page. All three owe their power not to public position or spiritual influence but to private wealth.
As contenders in the Democratic primary for the 2020 US presidential election, Senator Bernie Sanders of Vermont and Senator Elizabeth Warren of Massachusetts have promised to impose new taxes on the super-wealthy. Warren’s wealth-tax proposal – a levy of 2% on every dollar of net worth above $50 million, rising to 6% for fortunes greater than $1 billion – has ruffled billionaires’ feathers. According to Gates, he has paid more in taxes than almost anybody – some $10 billion. And while he would consider it “fine” if that figure had been doubled to $20 billion, he believes a much higher tax would threaten the incentive system that led him (and others) to invest in the first place.
For his part, Michael Bloomberg, the founder of the Bloomberg news empire, a former mayor of New York City, and now a Democratic presidential contender himself, argues that a wealth tax might be unconstitutional, and that it would turn the US into the likes of Venezuela. And not to be outdone, Facebook founder and CEO Mark Zuckerberg has suggested that taxing billionaires’ wealth would lead to worse outcomes than leaving it where it is, implying that the ultra-wealthy know better than the peoples’ elected representatives how tax revenues should be spent.
Note the sense of entitlement underlying each of these reactions. Each man’s billions, we are told, belong to him; he earned the money and should therefore get to decide how to spend it, be it on philanthropic projects, taxes, or neither. The billionaires tell us that they are willing to pay a fair share of taxes, but that there is some undefined threshold where the incentives to innovate and invest will be thrown into reverse. At that point, apparently, the ultra-wealthy will go on strike, leaving the rest of us worse off.
But this perspective ignores the fact that accumulated wealth is largely a product of law, and by implication of the state and the people who constitute it. As economist Thomas Piketty demonstrates in his 2014 book, Capital in the Twenty-First Century, the rich today hold most of their wealth in financial assets, which are simply legally protected promises to receive future cash flows. Take away legal enforceability, and all that remains is hope, not a secure asset.
Moreover, the private empires over which today’s billionaires preside are organized as legally chartered corporations, which makes them creatures of the law, not of nature. The corporate form shields the personal wealth of the founders and other shareholders from the corporation’s creditors. It also facilitates the diversification of risk within a company, by allowing discrete pools of assets to be created, each with its own set of creditors who are barred from making claims on another asset pool, even though the parent company’s management controls all of them.
Further, the company’s own shares can be used as currency when acquiring other companies. When Facebook bought WhatsApp, it covered $12 billion of the $16 billion purchase price with its own shares, paying only $4 billion in cash. And, as with Facebook, corporate law can be used to cement control by founders and their affiliates through dual-class share structures that grant them more votes than everyone else. As such, they need not fear elections or takeovers of any kind.
Finally, companies whose assets take the form of intellectual property (IP) and other intangibles tend to rely even more on the helping hand of the law. As of 2018, 84% of the market capitalization of the S&P 500 was held in such intangible assets. It takes a legal intervention to turn ideas, skills, and knowhow – which are free to be shared by anybody – into exclusive property rights that are enforced by the full power of the state. And in recent years, Microsoft and other US tech companies have boosted their earning power significantly by promoting US-style IP rules around the world through the World Trade Organization’s body for Trade-Related Aspects of Intellectual Property Rights (TRIPS).
To be sure, there are good reasons for states to adopt laws that empower private agents to reap the rewards of organizing businesses and developing new products and services. But let’s call a spade a spade and a (legal) subsidy a subsidy. While Bezos, Bloomberg, Gates, and Zuckerberg may well be savvy entrepreneurs, they also have benefited on a massive scale from the helping hand of legislatures and courts around the world. This hand is more contingent than the invisible one immortalized by Adam Smith, because its vitality depends on a widely shared belief in the rule of law. The erosion of that belief, not a tax, poses the greatest threat to billionaires’ wealth.
Quite a few people, and they have something in common. It’s not poverty.
President Trump has been good for America’s billionaires. He slashed corporate taxes, cut the top income tax rate and raised the total exemption for the estate tax, directly benefiting several hundred billionaires and their heirs. He’s placed wealthy supporters in key positions of government like the Commerce Department, rolled back Obama-era financial regulations and privileged the interests of favored industries — like resource extraction and fossil fuel production — above all else.
There are billionaires who oppose Trump, of course. But for the most part they aren’t class traitors. They still want the government to work in their favor. They still want to keep their taxes low, just without the dysfunction — and gratuitous cruelty — of the current administration. And they want Democrats to choose a conventional nominee: a moderate standard-bearer who doesn’t want to make fundamental changes to the economy, from greatly increased taxes to greater worker control.
Plenty of Democratic voters agree. But just as many have rallied behind candidates who want a more equal, more democratic economy. Two of the three leading candidates — Bernie Sanders and Elizabeth Warren — want new taxes on the wealthiest Americans and their assets. Sanders has the steeper tax but Warren is not far behind former vice president Joe Biden in national polling and leads the field in both Iowa and New Hampshire. With Biden struggling to break away from the pack, it looks like Warren actually could be the nominee, and anti-Trump billionaires are worried.That’s why one of them, Mike Bloomberg, has floated a plan to run for the Democratic nomination. And why others have gone public with their attacks on Warren.Mark Cuban, a billionaire investor, said Warren — whose wealth tax calls for a 2 percent tax on households with more than $50 million in assets and a 6 percent tax on households with assets of more than $1 billion — is “selling shiny objects to divert attention from reality.”
Another billionaire investor, Leon Cooperman, called Warren’s wealth tax a “bankrupt concept,” said it could “lead to inappropriate actions in the economy that are counterproductive” and warned that Warren is “taking the country down a very wrong path.”
“What she’s peddling is bull. Total, complete bull,” Cooperman said last week on CNBC, “That comes from someone who believes in a progressive income tax structure, who believes the rich should pay more.”
A few days later, Cooperman announced his support for Bloomberg’s potential candidacy.
Bill Gates also thinks Elizabeth Warren’s wealth tax goes too far: “I’ve paid over $10 billion in taxes. I’ve paid more than anyone in taxes. If I had to have paid $20 billion, it’s fine. But when you say I should pay $100 billion, then I’m starting to do a little math about what I have left over.” He claimed that he was “just kidding,” but when asked if he would support Warren over Trump, he demurred. Instead, he said, he’d cast a ballot for whichever candidate had the “more professional approach.”
If there’s a prominent billionaire who hasn’t taken a public stance on Warren, it’s Jeff Bezos, the chief executive of Amazon. But he did urge Bloomberg to run for president earlier this year, perhaps a sign that he too is worried about the outcome of the Democratic primary.
All of this is understandable. As my colleague Patty Cohen notes, if Warren’s wealth tax had been in effect since 1982, Gates would have had $13.9 billion in 2018 instead of $97 billion, Bezos would have $48.8 billion instead of $160 billion, and Bloomberg would have had $12.3 billion instead of $51.8 billion. They would still be billionaires, but Warren’s tax would have taken a significant chunk out of their assets. And even if the wealth tax never became law, a Warren administration would still take a hard line on financial regulation, consumer protection and tax enforcement, key areas of interest for the super rich. It’s impossible to imagine a Warren White House in which billionaires would have the same access and favored status that they do with Trump.
Warren’s wealthy critics are right to be nervous. And they have a right to speak out against her. But Bloomberg’s potential entry into the race — and Tom Steyer’s ongoing presence — shows that they’re not just giving an opinion. They want assurance that the Democratic nominee won’t be too disruptive. They want a restoration of the pre-Trump status quo, not a revolution. They want a veto of sorts, a formal way to say that Democrats can only go so far with their plans and policies.
The only response worth making to this idea is to laugh. Despite voter suppression, unlimited political spending and the president’s attempt to solicit foreign interference on his behalf, this is still a democracy. The final say still rests with voters, with ordinary Americans who retain the power to shape our government. And if those voters decide to nominate Warren or Sanders instead of a traditional moderate — and if either of those candidates beats Trump, as is very possible — then the billionaires will have to learn to live with the people’s will.
Oct. 17 – Bill & Melinda Gates Foundation Co-Chair and Microsoft Co-Founder Bill Gates talks about global warming, carbon emissions, regulating big tech, and why he thinks Impossible Foods and Beyond Meat can help the environment. He appears on “The David Rubenstein Show: Peer-to-Peer Conversations.” The show was recorded on June 24 in Washington.
In Squamish, British Columbia, there’s a company that wants to stop climate change by sucking carbon dioxide out of the atmosphere. It’s called Carbon Engineering, and it uses a combination of giant fans and complex chemical processes to remove carbon dioxide from the air in a procedure known as Direct Air Capture. Direct Air Capture isn’t new, but Carbon Engineering says its technology has advanced enough for it to finally make financial sense. The company is backed by Bill Gates — but also by the oil giants Chevron, BHP, and Occidental. These partnerships will bring Carbon Engineering’s tech to market by using the captured carbon to make synthetic fuels and and help extract more oil from the ground. Will Carbon Engineering’s technology decrease the amount of CO2 in the air, or is it going to prolong our dependence on fossil fuels?