Could a Wealth Tax Protect Billionaires?
I want a high wealth tax on billionaires because I think billionaires are good for America. To elaborate, I think a high wealth tax could protect billionaires and help preserve capitalism.
A growing percentage of Americans think billionaires are bad for the United States. In detail, 29% of Americans Pew Research surveyed said “billionaires are a bad thing for the country,” in July 2021. The percentage of Americans who say billionaires are bad grew from 23% in January 2020, Pew reports.
Frighteningly, growing numbers of both Republicans and Democrats say billionaires are bad. The percentage of Republicans who say billionaires are bad for America grew from 9% in January 2020 to 14% in July 2021, Pew calculates. Similarly, the percentage of Democrats who say billionaires are bad grew from 34% in January 2020 to 42% in July 2021, Pew data shows.
Disturbingly, younger Americans are more hostile to billionaires. Pew estimates that 39% of Americans under 30 said billionaires were “a bad thing” in March 2020. Comparatively 24% of Americans between 30 and 49 said billionaires were bad in 2020.
Thus, almost one in three Americans, over one in three younger Americans, over four in ten Democrats, and over one in ten Republicans say billionaires are bad. I think this data reveals widespread anger at billionaires and the rich.
Why do People Hate Billionaires?
One reason people hate billionaires is the widespread belief the rich are parasites, predators, and robber barons.
In particular, many ordinary Americans believe the rich pay no taxes. Predictably, many politicians promote this notion. Hypocritically, the same politicians love to stuff their pockets with billionaires’ money.
Disturbingly, this belief has some validity. The White House claims America’s “400 wealthiest billionaire families” paid an average income tax rate of 8.2% between 2010 and 2018.
Other data casts serious doubt on the Biden Administration’s claim. In contrast, Statista estimates the richest 1% of Americans paid a 25.57% tax rate in 2019. Similarly, the wealthiest 5% of Americans paid a 21.98% tax rate in 2019, the richest 10% of Americans paid a 19.89% tax rate in 2019, and the 25% highest-earning Americans paid a tax rate of 16.73% in 2019, Statista estimates.
America’s Unfair Tax System
One reason Americans suspect the rich pay no taxes is America’s unfair federal tax system. To explain, the Peter G. Peterson Foundation estimates 32% of the 2022 federal tax revenues will come from payroll taxes (FICA).
Conversely, Statista estimates “10% of the richest people in the United States owned almost 70% of the country’s total wealth” in the first quarter of 2021. If Statista is correct, the wealthiest 10% of Americans have 70% of the wealth, yet 32% of the federal taxes come from working people’s pay.
I calculate the federal government could raise $1.4048 trillion in payroll taxes in 2022 using the Peterson Foundation’s numbers. Meanwhile, total US billionaires’ wealth grew from $2.948 trillion on 18 March 2020 to $4.621 trillion on 10 March 2022. That is an increase of 56.8% or $1.673 trillion, Americans for Tax Fairness estimates.
Learning to Love Billionaires
I calculate a 75% wealth tax on billionaires alone could raise $3.46575 trillion if Americans for Tax Fairness is correct.
If we could collect all that money, Congress could eliminate the $1.4048 trillion the federal government collects in payroll taxes or FICA. Hence, working people could take home more of their paychecks. The federal payroll, or FICA tax, finances Social Security and Medicare.
Thus, billionaires could pay for government and help America eliminate the payroll tax. Hence, billionaires could become a resource to be protected rather than enemies to be destroyed.
If the federal government needed billionaires to finance its operations. There will be a powerful incentive to protect them. Conversely, our current system makes billionaires the enemy of the common people. In our popular imagination, billionaires are parasites who pay no taxes and corrupt our government.
Ironically, the conservatives and libertarians who oppose taxes on billionaires promote this myth. Billionaires’ worst enemies are their self-proclaimed friends who think they are defending freedom by demonizing taxes.
No Wealth Taxes would not eliminate Billionaires
Interestingly, the most common argument against the wealth tax that it discourages moneymaking or drives billionaires out of the country is easy to debunk.
A sensible wealth tax will not impoverish billionaires. Under a 75% wealth tax, a person with $1 billion will still have $250 million. That’s more than enough to buy several Ferraris, a mansion, a condo in Hawaii, and an apartment in Manhattan.
Similarly, under a 75% wealth tax, I calculate America’s richest man, Elon Musk, would still have$58.88 billion. I calculate Musk could buy Twitter (TWTR) for cash and still have $14.88 billion left over. Since Musk lives a famously modest lifestyle, his only luxuries are expensive cars and a private jet. Musk claims he does not own a house. The tax would be no hardship for Elon.
Likewise, Charles Koch, the heir to America’s largest private company, Koch industries, would have $15.75 billion left with a 75% wealth tax, or more than enough to finance all of his political activities.
As for the claim that billionaires will leave the country. Does anybody think Musk can move the Tesla (TSLA) Gigafactories and SpaceX to South Africa to avoid taxes?
Nor is Jeff Bezos likely to decamp for Dubai and I doubt Charles Koch will move to Switzerland. Most of Koch’s money comes from oil refineries and other businesses in America. Even if Koch left, most of the cash would stay. Koch cannot move his oil refineries to Switzerland, and Bezos cannot take the Amazon (AMZN) fulfillment centers to Dubai.
How Billionaires could pay a Wealth Tax without Losing their Billions
There is an easy way for billionaires to pay a wealth tax without losing their billions.
The billionaires could use their assets as collateral for lines of credit and use the credit to pay the tax. Many billionaires already use this strategy to finance their companies or lifestyles.
For example, Elon Musk pledged 88.3 million Tesla (TSLA) shares as collateral in November 2021, Forbes estimates. Audit Analytics estimates executives had pledged $239 billion worth of stock as collateral in November 2021, Forbes reports.
Hence, a wealth tax will not be a great hardship for billionaires. Many of them could pay it by borrowing against assets and keep their fortunes.
The wealth tax will not be the hardship to billionaires many conservatives imagine. Yet, a wealth tax could make life easier and safer for billionaires by eliminating one of the principal arguments against them – the claim billionaires pay no taxes.
If Elon Musk could tell his detractors, “I paid a $176.63 billion tax bill last year, what did you do for the country?” He would shut most of them up.
Can a Wealth Tax Prevent a Second Civil War?
One final thought here, paying a high wealth tax could be uncomfortable, but it will be far less painful than a revolution. In his recent book Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail Ray Dalio notes that high levels of income inequality are a cause of revolution and civil war.
America has high levels of income inequality and the media and blogosphere are full of speculation about a Second American Civil War. The Second Civil War meme is so pervasive, it was part of the plot in the series premier of Star Trek: Strange New Worlds.
I think a wealth tax could defuse some of the anger over income inequality. That could protect billionaires. After all, paying a wealth tax is far better than being hung from a lamppost or dragged to the guillotine. In August 2020, a mob set a guillotine up at Jeff Bezos’ Washington, DC, home.
America’s billionaires and their apologists need to ask themselves: “which is more important; keeping our money, or preserving the nation and the capitalist system that helped us make that money?” If the nation and capitalism are more important, billionaires will welcome a wealth tax.