Why a “Billionaire” Wealth Tax Would Hurt the Working Poor and the Middle Class

https://fee.org/articles/why-a-billionaire-wealth-tax-would-hurt-the-working-poor-and-the-middle-class/

Why a “Billionaire” Wealth Tax Would Hurt the Working Poor and the Middle Class

Although the wealth tax was drafted with the poor in mind, its passing could cause them more harm than benefit.

By Mark Hornshaw

October 4, 2019

Vermont Senator Bernie Sanders wants to tax billionaires out of existence, or at least make them an endangered species. His proposed wealth tax of up to 8 percent per year would mean “the wealth of billionaires would be cut in half over 15 years,” he says.

The progressive tax would start at 1 percent on retained wealth over $32 million, rising to 2 percent over $50 million, and so on, reaching to the top rate of 8 percent on wealth over $10 billion. Whatever is left would be taxed again the following year, and every year until it was gone.

Let’s assume for the sake of argument that you don’t have an ethical problem with taxing people a second time on wealth that has already been taxed. And let’s set aside the issue of whether billionaires would simply leave their wealth on the table for Sanders to take, rather than fleeing to places with less ambitious governments. Let’s posit for the sake of argument that the tax achieves its aims.

The question then becomes, would it be beneficial for the working poor who Sanders is appealing to? Would it leave them better off or worse?

Net Worth Isn’t What You Think It Is

Amazon founder Jeff Bezos has a net worth of $109 billion, according to Bloomberg. If you think you can get a decent abode for $1 million, then it seems like he could buy 109,000 plush houses. Does anybody need that much wealth? Wouldn’t it be better off going to people who need it more? How does leaving that corporate wealth in private hands help the average person? This is the simplistic way that Sanders wants you to think about the situation. But this is not a true reflection of the situation at all.

In pre-capitalist feudal times, wealth was acquired by conquest and subjugation. The Duke in the castle was there because his group was militarily the strongest, having defeated the previous band of marauders, who defeated everybody else in the area. A Duke’s castle might be sacked by the army of another Duke, but the common person’s lot in life would be the same, albeit with a new master.

In this system, nearly all production was for the benefit of the wealthy “strongman.” The tailor-made fine clothes for the Duke. The blacksmith shod the Duke’s horses, the woodworker made the Duke’s furniture, and so on. For everybody else, virtually nothing was produced at all apart from meager subsistence. It was not possible to “become” wealthy in such a society—there was no peaceful process by which it could occur.

Sanders and many others would like you to view the world in that paradigm. But that is not how a market economy works.

Sure, the rich still appreciate their custom furniture and fine clothes—and you can make a modest living as a craftsman or tailor. But you don’t become a billionaire yourself from those activities. You become a billionaire in a market economy by producing products for millions, or even billions of people.

The people who started Amazon, Google, Walmart, Apple, Microsoft, and Disney got rich through their unparalleled level of service to the masses. They were “voted rich” through the voluntary choices of millions of people.

Amazon is one of the most amazing engines of poverty reduction and enhancement of living standards the world has ever seen. They literally make the working poor less poor, by offering them goods and services they like at prices they can afford. (Not to mention the opportunities Amazon creates by empowering and encouraging entrepreneurs to start new side businesses at very low start-up cost.)

The Problem with a Wealth Tax

I’m sure Bezos has some nice houses (as does Sanders) and other luxury items that would make our minds boggle. But not $109 billion worth. Most of the wealth of people like Bezos consists of shares in the companies they started, which were initially worth zero. It is other people’s recent valuations of those shares on the stock exchange that we are quoting. The figures come from multiplying the last traded parcel of shares by the total number of shares owned – not from any realistic offer to purchase the whole company.

Somebody like Bezos does not normally keep a spare $8 billion under the mattress, just in case Uncle Sam asks for it. In order to raise that money, he would have to sell down some of the stock of his company, and probably much more than $8 billion worth at the current valuation. But who would buy them?

When you credibly threaten to confiscate wealth, valuations can plummet. Not to mention the fact that all other billionaires (at least American ones) would be in the same predicament, being forced sellers of large portions of their own stocks.

Perhaps during the initial rounds of the tax, there may be some small investors, small enough to be flying below Sanders’s radar for the time being. But if these shareholders thought they could do a better job running those companies, they could just buy those shares on the open market right now. By not doing so in an un-coerced market, they are indicating that they feel less competent than the current owners.

So over time, it would be unlikely that any new Amazons or Apples would be started, and existing firms would be placed in ever less capable hands, with ever lower valuations as the wealth tax works its way down the line from billionaires to millionaires.

Sanders would either have to tax a vastly diminished pie or ask foreign investors to buy up US firms or, more likely, just confiscate shares directly and nationalize the companies. After a very short time, these companies would end up being majority-owned by the state – a veritable “trillionaire.”

Who’s Best Suited to Run a Business?

But perhaps you agree with Sanders that billionaires should not even exist, so it is still worth it anyway, regardless of how much tax is raised. The key question is, would the state do a better job running those companies than the entrepreneurs who started them or the investors who may have voluntarily bought them?

This is an important question, since these companies were started to provide goods and services to the masses, so it is the poor and middle class who will suffer if they do not operate efficiently. But now, instead of being run by competent, productive, future-oriented billionaires, these companies would be managed by an incompetent, non-productive, ultra-short-term-oriented trillionaire institution.

A billionaire businessperson could, if they wanted to, spend their fortune building statues of themselves. But that would only be a drain on the wealth they had acquired through previous rounds of serving customers. They would quickly find that it does not generate new income, and would promptly stop, choosing instead to invest in ways that expand the business by serving even more people. There is an effective feedback loop to weed out unproductive choices and reward productive ones.

But the state, for its entire existence, has had the privilege of being able to just confiscate any resources it wants and order them to be used in any way its rulers direct. It can choose to build statues, pyramids, or whatever it wants, whether or not it serves real consumer needs. Neither does it have to worry about competition from new entrants doing a better job; it can just ban them. Since nobody gets to choose whether to commit the resources or buy the finished goods, there is no way of knowing whether those resources were spent wisely or poorly.

This does not mean people in government don’t make any good decisions. They will stumble upon some good ones over time. But the people involved do not bear any direct consequences for their bad decisions, and neither are they directly rewarded for their good decisions. They have less effective mechanisms for weeding out the bad decisions and doubling down on the good ones. There is more incentive for managers and employees to make their own job more comfortable and less demanding, and there is less consequence for leaving customers twisting in the wind.

In short, a wealth tax means state-owned enterprises, and a state-owned enterprise can get away with being unresponsive, self-absorbed and lazy.

If you dislike productive billionaires, you ought to be 1,000 times more suspect of confiscatory trillionaires.

October 6, 2019. Tags: , , , , , . Bernie Sanders, Communism, Economics. Leave a comment.

I have four questions for Alexandria Ocasio-Cortez, Bernie Sanders, and anyone else who calls themselves a socialist

I’m curious to hear what Alexandria Ocasio-Cortez, Bernie Sanders, and any other self-described socialists think of these four things:

1) After President Reagan cut the top income tax rate, all of the other OECD countries did the same thing. What do you think of that?

2) Sweden abolished its inheritance tax, after a study showed that the tax did not reduce inequality. What do you think of that?

3) This is what happened as a result of France’s wealth tax. What do you think of that?

http://www.washingtonpost.com/wp-dyn/content/article/2006/07/15/AR2006071501010.html

Old Money, New Money Flee France and Its Wealth Tax

July 16, 2006

Eric Pinchet, author of a French tax guide, estimates the wealth tax earns the government about $2.6 billion a year but has cost the country more than $125 billion in capital flight since 1998.

4) The following rich liberals have all used legal tax shelters to legally lower their own taxes. What do you think of that?

Debbie Wasserman Schultz

The Weekly Standard reports:

Disclosure forms reveal that Democratic National Committee chair Debbie Wasserman Schultz, a member of Congress from Florida, previously held funds with investments in Swiss banks, foreign drug companies, and the state bank of India. This revelation comes mere days after the Democratic chair attacked presumptive Republican presidential candidate Mitt Romney for holding money in Swiss bank accounts in the past.

Nancy Pelosi

The Daily Caller reports:

According to Pelosi’s 2011 financial disclosure statement, the Democratic House Minority Leader received between $1 million and $5 million in partnership income from ”Matthews International Capital Management LLC,” a group that emphasizes that it has a “A Singular Focus on Investing in Asia.”A quick trip to the company website reveals a featured post extolling the virtues of outsourcing.

Valerie Jarrett

fireandreamitchell.com reports:

Top Obama adviser and BFF Valerie Jarrett has a line of credit from a Bermuda insurance company valued between $100,000 and a quarter of a million dollars.

Barack Obama

Fox News reports:

President Obama and his wife, Michele, gave a total of $48,000 in tax-free gifts to their daughters, according to tax records made public on Friday.The president and his wife separately gave each daughter a $12,000 gift under a section of the federal tax code that exempts such donations from federal taxes.There is nothing illegal about the president’s taking advantage of this tax shelter, but it does raise eyebrows given that he has lamented the myriad tax exemptions used by the wealthy—“millionaires and billionaires” like himself—to pay less in taxes.

Noam Chomsky

The Hoover Institution reports:

One of the most persistent themes in Noam Chomsky’s work has been class warfare. He has frequently lashed out against the “massive use of tax havens to shift the burden to the general population and away from the rich” and criticized the concentration of wealth in “trusts” by the wealthiest 1 percent. The American tax code is rigged with “complicated devices for ensuring that the poor—like 80 percent of the population—pay off the rich.”

But trusts can’t be all bad. After all, Chomsky, with a net worth north of $2,000,000, decided to create one for himself. A few years back he went to Boston’s venerable white-shoe law firm, Palmer and Dodge, and, with the help of a tax attorney specializing in “income-tax planning,” set up an irrevocable trust to protect his assets from Uncle Sam. He named his tax attorney (every socialist radical needs one!) and a daughter as trustees. To the Diane Chomsky Irrevocable Trust (named for another daughter) he has assigned the copyright of several of his books, including multiple international editions.

Chomsky favors the estate tax and massive income redistribution—just not the redistribution of his income. No reason to let radical politics get in the way of sound estate planning.

When I challenged Chomsky about his trust, he suddenly started to sound very bourgeois: “I don’t apologize for putting aside money for my children and grandchildren,” he wrote in one e-mail. Chomsky offered no explanation for why he condemns others who are equally proud of their provision for their children and who try to protect their assets from Uncle Sam.

John Kerry

The Boston Globe reports:

Documents obtained by the Globe detail John Kerry’s 1983 investment of between $25,000 and $30,000 in offshore companies registered in the Cayman Islands. The document below, signed by Kerry, shows his pledge to purchase 2,470 shares of Peabody Commodities Trading Corp. through Sytel Traders, registered in the Caymans.

Barney Frank

National Review reports:

When Massachusetts cut its top tax rate to 5.3 percent in 2001, it let guilty liberals pay the old 5.85 percent rate if they wished… Pro-tax U.S. Rep. Barney Frank (D., Mass.) spurned the higher rate. “No, I won’t” pay some $800 extra, Frank told Boston radio host Howie Carr in April 2003.

Michael Moore

ihatethemedia.com reports:

Moore’s most recent effort, Capitalism: A Love Story, took aim at businesses that used shelters to avoid paying taxes and took government bailouts during the market crash.

The thing is, Moore used similar tactics, taking advantage of a Michigan tax break to fund the making of his film–which raked in millions, by the way. Michigan taxpayers–already hit hard with the collapsing auto industry–were left holding the funny money bag for that one.

Bill Clinton

USA Today reports:

Former president Bill Clinton once made public a tax return on which he deducted $2 apiece for donated underwear.

February 8, 2019. Tags: , , , , , . Alexandria Ocasio-Cortez, Bernie Sanders, Economics. Leave a comment.

Poll: What do you think of Denmark’s long term welfare policy for able bodied people?

This New York Times article is from six years ago, but I just found out about it.

The article talks about able-bodied people in Denmark who have been on welfare for a very long time.

It says these able bodied adults get more money from welfare than what many full time workers get from their jobs.

Here’s one example from the article:

It began as a stunt intended to prove that hardship and poverty still existed in this small, wealthy country, but it backfired badly. Visit a single mother of two on welfare, a liberal member of Parliament goaded a skeptical political opponent, see for yourself how hard it is.

It turned out, however, that life on welfare was not so hard. The 36-year-old single mother, given the pseudonym “Carina” in the news media, had more money to spend than many of the country’s full-time workers. All told, she was getting about $2,700 a month, and she had been on welfare since she was 16.

Here’s another example from the article:

Robert Nielsen, 45, made headlines last September when he was interviewed on television, admitting that he had basically been on welfare since 2001.

Mr. Nielsen said he was able-bodied but had no intention of taking a demeaning job, like working at a fast-food restaurant. He made do quite well on welfare, he said…

… Mr. Nielsen, called “Lazy Robert” by the news media, seems to be enjoying the attention. He says that he is greeted warmly on the street all the time. “Luckily, I am born and live in Denmark, where the government is willing to support my life,” he said.

So when you hear Bernie Sanders, Elizabeth Warren, Alexandra Ocasio-Cortez, and other American politicians say they want the U.S. to be like Denmark, please ask yourself if the two people cited above by the New York Times are how you would want your own able bodied children to behave when they grow up.

January 29, 2019. Tags: , , , , , , , , , . Bernie Sanders, Economics, Polls. 2 comments.

Trying to figure out the real reason Alexandria Ocasio-Cortez bans reporters from her town hall events

The New York Times reports that Alexandria Ocasio-Cortez has banned the media from two of her town hall meetings.

Ocasio-Cortez tweeted the following explanation for the ban:

“Our community is 50% immigrant. Folks are victims of DV, trafficking, + have personal medical issues.”

“This town hall was designed for residents to feel safe discussing sensitive issues in a threatening political time.”

“We indicated previously that it would be closed to press.”

Ben Jacobs, a reporter for The Guardian, responded with the following tweet:

“And how does the presence of reporters make people feel unsafe?”

I think Jacob’s question is an excellent one.

I’d also like to point out that all of the other Congressional districts also have constituents who are “victims of domestic violence” and who have “personal medical issues,” but that the Congressional representatives and candidates of those other districts haven’t banned the media from their town hall events.

In the video below, YouTuber Styxhexenhammer666 says that one possible reason for Ocasio-Cortez’s media ban is that any illegal aliens in attendance would – justifiably – worry about being filmed by the media. However, he then goes on to say that Ocasio-Cortez could ask the media to keep their cameras focused on her and not the audience, and that they would likely comply.

Styxhexenhammer666 then goes on to say that he thinks her real reason for banning the media is that there might be a constituent in attendance who asks her a tough question about economics that she can’t answer. Specifically, he says that she doesn’t seem to understand that the only reason that democratic socialism in countries like Norway works is because there is a strong, healthy private sector to pay the taxes to fund it. Take away that strong, healthy private sector, and your country ends up like Venezuela.

I agree with him on both of these points.

https://www.youtube.com/watch?v=qkk1_J6tucQ

August 18, 2018. Tags: , , , , , , , , , , , , , , , , . Alexandria Ocasio-Cortez, Economics, Venezuela. Leave a comment.

The Democratic Socialists of America supports the same policies that have destroyed Venezuela’s ability to feed itself

The New York Times just published this article, which is titled “The Millennial Socialists Are Coming.” The article talks about the growing popularity of socialism among Millennials, and points out several examples of socialist candidates beating long term Democrats in primary elections.

The New York Times article includes this link to the constitution and bylaws of the Democratic Socialists of America. Here is a brief excerpt from it (the bolding is mine):

“We are socialists because we reject an economic order based on private profit, alienated labor, gross inequalities of wealth and power, discrimination based on race, sex, sexual orientation, gender expression, disability status, age, religion, and national origin, and brutality and violence in defense of the status quo. We are socialists because we share a vision of a humane social order based on popular control of resources and production, economic planning, equitable distribution, feminism, racial equality and non-oppressive relationships.”

Let’s take a look at what those two bolded parts manage to achieve when they are adopted in the real world. Specifically, let’s take a look at what’s currently going on in Venezuela, which I have previously described in great detail in this lengthy and well sourced blog post, which I have titled, “The Maduro diet: How most Venezuelans lost an average of 19 pounds in 2016, plus another 24 pounds in 2017.”

The Democratic Socialists of America claim that they “reject an economic order based on private profit.” That’s exactly what Venezuelan president Hugo Chavez was doing when he started implementing price controls on food in Venezuela in 2003. These price controls caused shortages of food. Anyone who understands Economics 101 knows that price controls cause shortages.

The Democratic Socialists of America claim that they support “popular control of resources and production.” This is exactly what Hugo Chavez did when he had the government seize more than 10 million acres of farmland from private owners. As a result of these land seizures, food production fell substantially.

Before Chavez died, he appointed Nicolas Maduro to be his successor. After Chavez died in 2013, Maduro continued Chavez’s policies.

In 2018, all of Chavez’s food policies are still in effect. The profit motive has been taken away from food production. Ownership of the means of producing food has been collectivized.

Because the Venezuelan government adopted the exact same polices that are supported by Democratic Socialists of America, most Venezuelans lost an average of 19 pounds in 2016, plus another 24 pounds in 2017.

And you don’t have to take my word for this. My blog entry that I mentioned earlier contains a very large number of links to sources which document exactly how this happened.

One thing that’s interesting about the links in my blog entry on Venezuela is that many of my sources are links to articles in the New York Times. And yet the current article form the New York Times on the Democratic Socialists of America makes absolutely no mention of the the kinds of horrible disasters that happen when such policies are adopted in the real world.

And before anyone goes and mentions the Scandanavian countries, I would like to point out that those countries have by no means adopted the polices supported by the Democratic Socialists of America that I quoted and bolded above. They have not abandoned the profit motive, and they have not turned their means of production over to collective ownership.

On the contrary, Sweden, Norway, Finland, and Denmark all have thriving private sectors with huge corporations that make massive profits.

 

June 30, 2018. Tags: , , , , , , , , , , , . Alexandria Ocasio-Cortez, Communism, Economics, Venezuela. 1 comment.

Bernie Sanders supports $15 minimum wage, but only pays his interns $12 an hour

Bernie Sanders wants to raise the minimum wage to $15 an hour.

But he only pays his interns $12 an hour.

I am curious to hear his explanation for this.

 

October 23, 2015. Tags: , , , , , , , , , . Bernie Sanders, Economics, Politics. 5 comments.