You wouldn’t consult Matt Lauer on how to rid a workplace of sexual harassment. And yet, in weighing solutions to income inequality, we find ourselves inexplicably returning to the wisdom of billionaires.
Last week, the 0.001 percent across the political spectrum raised an increasingly dire-sounding alarm: Under a wealth tax — like what Sens. Bernie Sanders and Elizabeth Warren are proposing — they would have considerably less money to keep for themselves, their offspring and their wise investments, with serious consequences for American job creation and innovation. These rebuttals come even as more and more research — not just from reformers, but mainstream economists as well — suggests that a wealth tax is worth at the very least investigating, at the very least.
The controversy gathered steam because even the ostensibly “good” billionaires like the prominent, poop-water-drinking philanthropist Bill Gates voiced reservations about what could happen if the government took too much of their money to pay for things like free college and healthcare. At a talk last Thursday as part of the New York Times Dealbook Conference, Gates even seemed to consider the possibility of voting to re-elect Trump over Sen. Warren over the taxation issue.
To advocates for a wealth tax, Gates’ admonition stung: If they can’t count on him, the well of well-intentioned billionaires quickly runs dry. Gates has spoken admiringly about the French economist and Capital author Thomas Piketty, the intellectual who more than anyone else helped revive the call for the wealth tax. A Piketty protégé, Gabriel Zucman, has been working closely with both Warren’s and Sanders’ campaigns on a proposed wealth tax and is among its chief defenders online.
Alas, such is the luxury of a billionaire philanthropist: Gates is able to soak in praise for appearing informed about income inequality while criticizing the precise solutions its experts call for.
A Wealth Tax Really Is Radical. Good.
The merits of paying for human needs by taxing billionaires’ astronomical wealth — most of which sits and grows more and more astronomical without any reinvestment in the American economy — sure seem obvious. But it’s important not to underestimate how radical the wealth taxes proposed by Warren and Sanders really are. Even in the tax-heavy nations of Western Europe, wealth taxes have been rejected as unworkable. Between 1990 and today, the number of European countries with wealth taxes shrank from 12 to three.
Economists have a few theories about why so many of the European wealth taxes failed, and it’s likely many of them played a factor. For one, wealth is much more abstract than income. Your paychecks are meted out in dollar amounts, making determining a fixed percentage that applies to all income groups equally relatively straightforward. Taxing wealth, however, is more complicated. After all, Beanie Babies, Pokémon cards and your mom’s engagement ring are all technically wealth. Determining what percentage of that wealth should be taxable, at what level and at what point is tricky.
Advocates for a wealth tax, like Zucman, argue that the European wealth taxes were simply bad — they affected too many people and raised too little money — and that these problems are rectified in plans like Sanders’ and Warren’s. To counter the problem of rich people “moving” to other countries with cheaper tax rates, the politicians call for a hefty “exit tax,” for example. The newer versions of wealth taxes would only kick in at fairly stratospheric levels, like fortunes worth $50 million or more. Once you build a fortune of that size, it’s assumed that each piece of wealth is likely insured and already accounted for.
With a Wealth Tax, a Rich Would Still Stay Rich
The bottom line: At these levels, the billionaires would hardly notice even a radical wealth tax. It’s not simply that billion-dollar fortunes would be difficult to spend, even if they wanted to. It’s also that wealth begets more wealth through phenomenons like compound interest and favorable treatment from investing professionals (to say nothing of the nepotism, private education, political donations and summertime pool access).
While income inequality may be a defining social problem of our age, its extent pales in comparison to wealth inequality. In fact, for all the concern about wealth taxes and productivity, one recent working paper even suggested a wealth tax could help by “shifting” the tax burden from productive rich people to the lazy ones.
In other words, a wealth tax would make it significantly harder to make a living as a failson (or daughter), because rich people would have a stronger incentive to pay attention to their trust funds (a nice problem to have!) and actually, ya know, find work.
The ‘Vampire Bill Gates’ Test
One numbers-savvy entrepreneur and game developer named Andi McClure even built a Python script to calculate how long it would take to tax Gates’ fortune into nonexistence — assuming, as she says, Gates is a vampire and never dies. McClure says that while her model is imperfect, it shows that even if Gates’ wealth were invested conservatively in equities, he would need a low average annual return — around 5.7 percent — for his wealth to continue growing for the next 1,000 years. At 9.8 percent — pretty good returns for an average person, but low for a billionaire — Gates’ wealth reaches $71 sextillion by the mid-24th century.
McClure’s point: The exponential benefits of compound interest strongly undercut the fear of taxation — and the bullshit argument that “innovation” will suffer if we touch the private wealth earned by the leisure class doing literally nothing.
“[Gates’ argument] is nonsense,” McClure tells MEL. “Cash doesn’t flow to innovation, it flows to fads.” For example: “Apple literally has more money than it knows how to spend. … They all try so hard to avoid paying taxes, but once they’ve clawed back that extra 6 or 10 percent or whatever from taxes, they don’t know what to do with it.”
McClure, an entrepreneur herself who left the hallowed bastion of capitalism in Silicon Valley to form a small gaming company in Canada, may have a point. Many of the glowing examples of Silicon Valley’s vast contributions to the economy — from Uber to We to PostMates and other gig economy companies — were eventually revealed to be little more than structures to circumvent labor laws, zoning laws or other regulations. But to give Silicon Valley the benefit of the doubt, if you did buy that these companies are “innovating,” you still have to explain why the second-biggest producer of billion-dollar startups isn’t in the U.S. or any other free-market-embracing nation at all — it’s in Sweden.
Is There Such Thing as Too Much Tax?
This is not to say that you could never make taxes too high. And there is some evidence that low taxes aren’t completely useless: A study from the St. Louis Federal Research estimated that the Tax Cut and Jobs Act may have moderately stimulated venture capital investing, research and development spending, and other markers of innovation. But paying for what our society needs shouldn’t be like pissing drunk — closing our eyes, spraying around and hoping some of it ends up in the bowl. And, of course, the revenue from those tax cuts could have gone to fund those things directly, but that’s an argument for another day.
And of course, we should also presume that if there were a wealth tax, many rich people would go out of their way to avoid it — through tax dodges, savvy accountants and foundations — whether out of the rational desire to save money or even the vindictive desire to be dicks.
It is important to be clear-eyed about the fact that re-writing the tax code would lead to some unintended consequences. These potential effects should be studied (and they are) to ensure a wealth tax is administered effectively. But what is so galling about the billionaire equivocations about a wealth tax is the implicit refusal to even consider the notion that the tradeoffs of these consequences could be worth it.
After all, it takes a real asshole to ask a single father working gig-economy jobs to dig himself out of medical debt whether he’d rather have healthcare or help a multibillionaire “stimulate the economy.” And yet, right now, that’s essentially what this entire debate is asking.