A recent Emory Wheel op-ed by Brammhi Balarajan (23C) suggested that “Billionaires Should not Exist.” But billionaires can exist, and I believe they are beneficial. The core of Balarajan’s argument lies in taking billionaires’ money through a so-called “wealth tax” to reduce social inequality. The wealth tax, as proposed by some presidential candidates, is both unconstitutional and counterproductive and harms the economy without solving apparent social inequality.
Most U.S. billionaires are self-made entrepreneurs who assume risks in their business endeavors. Land, machinery and other fees contribute to the fact that these people have skin in the game. Employees in low-wage jobs tend not to be invested in their company. As a food service employee myself, I know that if my company goes under I can find another low-wage job easily and quickly. The business owner who employed me, on the other hand, would be in copious debt after bankruptcy. It only makes sense, then, that if you take the risk, you should get the financial reward. Profits result from an elective agreement to the value of your labor, though you are free to work for less than that value; many often do to put food on the table. The free market aggregates the value of labor and people negotiate through disagreements. Negotiating collectively is great as long as those who want to work aren’t bullied out of that right. Raising the minimum wage lowers low-wage employees’ annual earnings; the free market maximizes earnings.
Balarajan’s claim that people who inherit wealth have no right to it skirts over the idea that, at some point in time, goods and labor were traded for capital in a voluntary exchange. Passing down the money you earned in your lifetime to your children is natural and right.
The wealth tax is often proposed to prevent the rich from hoarding their money, though philanthropy is a top interest among the majority of billionaires. Sen. Elizabeth Warren’s (D-Mass.) wealth tax proposal, which applies to net worth rather than income, will impose an additional 2 percent tax on those with a net worth greater than $50 million, and 6 percent on those over $1 billion. She claims the plan will accrue a 10-year revenue total of $3.75 trillion, roughly a tenth of her proposed spending increases. However, constitutional law scholars say that the wealth tax is not legal according to judicial precedent. Warren’s own campaign economists concede this. Settling the debate over whether Congress is able to levy this tax would require time, money and, potentially, a constitutional amendment.
If you sidestep the blatant legal and ethical issues the wealth tax poses and examine its effects, it becomes clear that the proposal would damage the economy, hurting both the rich and the poor. If a pro-wealth tax candidate is elected, there will be a mass exodus of capital flight as high-wealth households leave to avoid higher taxes. The remaining households start behaving in ways that are detrimental to the economy as a whole. And don’t forget the immense challenge and cost to the government of valuing the assets of the nation’s richest households. Many entrepreneurs will have to liquidate or sell their companies in order to pay this absurd tax because their net worth is tied up in their companies and not in piles of cash.
Perhaps the most important reason the wealth tax is an appalling idea is its effect on the economy against the backdrop of global growth. Our economy is doing very well. Low-wage jobs have improved at historic rates under the Trump administration due to a tightening labor market. Unemployment is at its lowest in 50 years. The middle class has also assumed 20 percent less of the tax burden, transferring it to the top 1 percent of earners since 1980. So let’s stop buying into the myth that Sen. Bernie Sanders (I-Vt.) is going to relieve the tax burden of the lower and middle classes, who experience very low or even net negative taxes already.
The punitive wealth tax will hurt the GDP because it reduces investment. The nonpartisan Tax Foundation compiled available studies on the effects of corporate and income tax rates on economic growth. The findings of 23 studies demonstrated a decisive negative relationship between higher tax rates and economic growth, three studies found no correlation and no studies suggested the opposite relationship. Higher taxes impede economic growth.
Some suggest that all that money goes to the billionaires: “For 90% of U.S. families wealth has not grown at all over the 1986-2012 period,” they claim. Untrue. This statistic is famously flawed as economist Edward Conard points out: “Misleading income measures assume tax returns. … They exclude faster-growing healthcare and other nontaxed benefits.” Non-wage compensation has significantly increased since 1979, sometimes contributing 30-40 percent of compensation in lower-class jobs.
Everyone, including the lower class, is better off today than they were 100 years ago. Continued innovation and the free market have given money more power. Entrepreneurial innovation improves the lives of consumers even when you create a wealth gap by buying a product. Focusing on lifting people out of poverty is commendable. Getting angry about disproportionate growth or income inequality isn’t because it doesn’t measure the living standards of the people in question. Being jealous of your neighbor hides the fact that you are doing better too.
I’ll readily agree that companies like Amazon who abuse their employees are evil, and we should look into protecting the rights of workers, but a wealth tax on billionaire CEOs isn’t going to solve that. I believe that people who are successful have a moral duty to better their community (a principle our society has replaced with secularized equality of outcome). What I disagree with is the idea that the government can confiscate their money and spend it (or even spend it better). The wealth tax, unconstitutional as it is, would hurt the American economy, steal validly earned money, take away our freedom and fail to solve the major problems it promises to eradicate. We ought to re-elect President Donald J. Trump to preserve liberty and foster growth in the economy.
Patrick Czabala (23C) is from Roswell, Ga.