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Are Billionaires Immoral? Democrats Are Staking Out Aggressive Anti-Wealth Platforms Ahead of 2020.

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http://reason.com/archives/2019/01/28/are-billionaires-immoral-democrats-ask

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Coming soon to a Democratic Party presidential debate: the question, "Is it morally appropriate for anyone to be a billionaire?"

A version of the query was raised earlier this month by the author Ta-Nehisi Coates. He was interviewing a new Democratic congresswoman from New York, the self-described socialist Alexandra Ocasio-Cortez, about, among other things, her plan to raise top marginal income tax rates as high as 70%.

Talking about the tax rate, which would nearly double the current top federal marginal rate of 37%, Ocasio-Cortez replied, "It's an economic question but it's also a moral question....It's saying, where do we draw the line in excess? Maybe this idea of idealizing this outcome, of maybe one day you too can be a billionaire and own more than millions of families combined, is not an aspirational or good thing."

 

Coates followed up: "I hate to personalize this, but do you think it is moral for individuals to, for instance—do we live in a moral world that allows for billionaires? Is that a moral outcome?"

The answer from the congresswoman was emphatic and came without any hesitation. "No, it's not. It's not. It's not. And I think it's important to say that."

She cautioned, "I don't think that necessarily means that all billionaires are immoral. It is not to say that someone like Bill Gates for example or Warren Buffett are immoral people, I do not believe that. But I do think a system that allows billionaires to exist, when there are parts of Alabama where people are still getting ringworm because they don't have access to public health, is wrong."

The factcheckers pounced to point out that the public health problem in Alabama is hookworm, not ringworm. But the larger point looms nonetheless.

It won't be the last time the issue comes up, at least if the congresswoman and her team have anything to say about it. Her policy aide, Dan Riffle, has a Twitter account named, "Every Billionaire Is a Policy Failure."

Riffle responded on Twitter to the Coates interview, which was at a Riverside Church event marking Martin Luther King Jr. Day: "My goal for this year is to get a moderator to ask 'Is it morally appropriate for anyone to be a billionaire?' at one of the Dem primary debates."

It'd be a particularly interesting question on which to hear from a variety of the other presidential candidates, both actual and potential.

Sen. Bernie Sanders (I-Vt.), like Ocasio-Cortez a self-described socialist, got impressive traction but not the nomination in the 2016 primary in part by talking incessantly about "billionaires."

Senator Elizabeth Warren rejects the socialist label but, campaigning in Puerto Rico recently, complained, "the rich and powerful are taking so much for themselves and leaving so little for everyone else." She has proposed a 3 percent annual wealth tax on those with assets of $1 billion or more.

And then there is Michael Bloomberg, who could have retired comfortably at 40 on his $10 million Salomon Brothers severance, but chose instead to work hard and risk his own capital on a financial technology startup, crawling under desks on weekends on floors littered with old McDonald's hamburger wrappers and mouse droppings to run computer cables for clients.

Another billionaire, longtime Starbucks coffee CEO Howard Schultz, says he is considering a presidential run as an independent. Schultz grew up in public housing in Brooklyn and was the first in his immediate family to attend college.

Republicans, including President Trump, who has his own fortune, often have trouble finding the right language to defend wealth.

Maria Bartiromo of Fox News Channel and Fox Business Network offered a hint some directions Republicans are likely to go in when she, on Fox News, described the remarks by Ocasio-Cortez as "quite naïve." She pointed out that rich people already pay a large share of federal income taxes. She defended the billionaires in part by talking about their philanthropy, speaking of Kenneth Langone's support for New York University's medical school, Hank Greenberg's support of New York-Presbyterian Hospital, and Stephen Schwarzman's support for the New York Public Library. Such philanthropy sometimes strikes leftists as undemocratic; they'd rather this money be allocated by Washington politicians elected by the general public than by the people who earned it.

Bartiromo also warned that confiscatory tax rates could hurt productivity: "Are you gonna work really hard, if you know that at a point, you will have to give it all to the government? I don't think so." This is a point not only about economic productivity at the national level, but about cultivating the individual virtue of hard work—"industry," as Benjamin Franklin called it.

Bret Stephens made a pragmatic and utilitarian case in The New York Times over the weekend, in a column about Venezuela: "All of this used to be obvious enough, but in the age of Alexandria Ocasio-Cortez it has to be explained all over again. Why does socialism never work? Because, as Margaret Thatcher explained, 'eventually you run out of other people's money.'"

One might ask, skeptically, whether people will really stop working as hard, and if the supermarket shelves will really go bare, if the financial rewards of capitalist success were to top out at $900 million rather than $1 billion or $100 billion. Unless some politician or thinker can come up with a better answer to the moral question, voters may be tempted to conduct a practical experiment on the matter using the American economy as a test case.

My own sense is that the best moral defense of billionaires requires putting the socialists on the defensive by answering the billionaire question with some other questions. Would it be moral for politicians in Washington to change the laws so that becoming a billionaire in America would be impossible, no matter how much value an entrepreneur creates for customers and shareholders and society as a result of the entrepreneur's hard work, genius, and risk-raking? What would that proposed alternative system do to the American dream and to its traditions of strong property rights? Why scapegoat and demonize a few billionaires for public health problems in Alabama that they have nothing to do with?

Won't we be more likely to make progress against poverty and disease if we avoid divisively linking those problems to the existence of a few rich people who aren't actually at fault for them? Is it a "moral world" where politicians can motivate millions of voters to blame a country's problem on a handful of wealthy individuals, and to suggest, without evidence, that long-term and intractable problems can be quickly solved if only tax rates were dramatically increased? Is the Democratic fixation with the billionaires (problem) and taxes (solution) much different from the Trump fixation on immigrants and the border wall?

It'd sure be nice to have a moderator ask, and the candidates answer, some of those questions, too, in the 2020 presidential debates.

You are always going to have "winners" and "losers" in a free society. Not everybody can be equal, and not all will have the same opportunities.  It is what it is, and socialism can't change that.

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Taxes Are Getting Weaponized for Partisan Purposes: http://reason.com/archives/2019/02/04/taxes-get-weaponized-for-partisan-purpos/

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Government agencies and laws have devolved into weapons to be wielded against political opponents in this country. Why wouldn't taxes follow?

Too many Americans promote taxes as a means of hurting people they dislike, putting the raising of revenue as a secondary consideration—or dropping it entirely.

Given the destructive nature of taxation, it's a potentially effective strategy, at least for a while. But it may also totally delegitimize the tax system in the eyes of the people who are supposed to pay the bills.

With simmering partisan animosity in the U.S. has come a growing willingness to use government to extirpate anything perceived as bad or politically different. Financial regulators, law enforcement, and legislation have already been conscripted to the cause of hurting political enemies. Taxation is the just the latest weapon in the war.

Insisting that "a system that allows billionaires to exist … is wrong," Rep. Alexandria Ocasio-Cortez (D-NY), a self-identified socialist, wants to slap punitive taxes on the prosperous. Yes, Ocasio-Cortez thinks a 70 percent marginal rate will raise some money for her pet projects, but that seems to take a back seat to using taxes to remake the economic system and eliminate a class of people she believes shouldn't exist.

Sen. Elizabeth Warren (D-Mass.) warned that "a small group of families has raked in a massive amount of the wealth American workers have produced." Warren wants to confiscate part of their accumulated assets. "My proposal will help address runaway wealth concentration," said the likely 2020 presidential candidate.

"I can't wait to tax Howard Schultz back into the middle class," tweeted progressive columnist Ian Millhiser, after the former Starbucks CEO had the temerity to float a possible independent presidential run. For Millhiser, revenue isn't even a consideration—it's all about harming a partisan foe.

Not that Team Blue has a monopoly on valuing taxation for its power to destroy. The current resident of the White House likes that characteristic, too.

"They will be taxed like never before," President Donald Trump vowed after motorcycle-manufacturer Harley Davidson announced plans to move some production overseas in defiance of the president's nationalistic economic policies. Trump also threatened both tax and antitrust actions against Amazon, explicitly linking his threats to criticism of his administration by The Washington Post, which shares Jeff Bezos as an owner.

The potentially destructive power of taxation isn't exactly a new discovery. It was U.S. Supreme Court Chief Justice John Marshall who wrote in 1819, "That the power to tax involves the power to destroy; that the power to destroy may defeat and render useless the power to create."

Governments have deliberately used that destructive power before. Notably, politicians impose "sin taxes," to economically suppress activities and products that they don't have the votes or the will to explicitly prohibit.

Sin taxes are a popular tactic—but never a successful one. They just drive people to the black market, failing both to suppress their targets or to raise revenue since underground sales aren't taxed at all.

Where sin taxes do succeed is in breeding evasion of and contempt for taxes. For example, more than half of the cigarettes sold in high-tax New York are smuggled or otherwise illegally sourced.

And after people have learned contempt for the tax system, unlearning may be difficult or impossible.

"Once tax evasion becomes deep-rooted, it is almost impossible to root it out," tax historian Charles Adams wrote in his classic 1993 book, For Good and Evil: The Impact of Taxes on the Course of Civilization.

In fact, that's proven to be the case with New York's thriving black-market tobacco trade.

"The problem is that the black market infrastructure has become well-established," commented James Calvin, director of the New York State Association of Convenience Stores. "Once the black market has developed a regular customer base, it becomes almost impossible for the state to muster enough resources to halt the illegal trade because of the scale of pervasive tax evasion."

If loading people with burdensome taxes as a backdoor effort to ban their vices earns their disdain and defiance, imagine the effects taxes deliberately intended to hurt them have on groups and individuals who are out of favor with whoever holds the reins of power.

 

"A respectful and fair treatment of taxpayers induces respect for the tax system and thus leads to co-operation," economist Benno Torgler wrote in a 2011 paper examining what drives people to comply with, or defy, taxes. "On the other hand, a higher perceived tax burden and inefficiencies and unfairness in the interaction between the tax administration and the taxpayers crowds out the intrinsic motivation to pay taxes."

That motivation is important because, despite the ferocious reputation of most tax agencies, none of them really have the means to enforce the compliance that governments require to function.

The somewhat incomplete tax compliance that countries see—currently 81.7 percent and slowly declining in the United States—is still way higher than economic models forecast. It's explainable only by a wide perception that the system is, to some degree, worth supporting.

Publicly vilifying people and announcing that proposed taxes are intended to harm them is a great way to convince people that they're being treated unfairly. It will then be only natural for them to feel perfectly justified in defending themselves against a malicious tax system.

On the plus side, once tax compliance tanks, there will be much less government left for the partisan factions to weaponize.

 

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Should Paul McCartney and Other Billionaires Be 'Abolished'?: http://reason.com/blog/2019/02/07/destroy-all-billionaires

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As left-wing populists and progressives ascend in the Democratic Party, they are laying down new dogma, none more heartfelt than the idea that billionaires are evil, rotten, and not to be tolerated. For the Bernie Sanders, Elizabeth Warrens, and Alexandria Ocasio-Cortezes of the world, billionaires are what witches were to Salem congregationalists and kulaks were to Lenin: a threat to they system that must be eliminated.

Ocasio-Cortez's economic policy adviser Dan Riffle has changed his Twitter name to "Every Billionaire Is a Policy Failure." Lefty blogger Tom Scocca declares "Billionaires are bad. We should presumptively get rid of billionaires" (he graciously adds, "they may go on living...[but] they must not be allowed to possess a billion dollars"). A research director at the proggy Roosevelt Institute says simply, "We do not need billionaires."

Then there's former Clinton administration Labor Secretary Robert Reich, who believes that with great wealth comes great culpability.

Anyone who has a billion dollars either exploited a monopoly that should have been broken up, got inside information unavailable to other investors, bribed some politicians, or inherited the money from their parents (who did one of the above). https://t.co/pzVOxr1K7m

— Robert Reich (@RBReich) February 7, 2019
 

Reich links to a column by The New York Times' Farhad Manjoo with the eliminationist title "Abolish Billionaires: A radical idea is gaining adherents on the left. It's the perfect way to blunt tech-driven inequality." The column makes two large points that undergird the anti-billionaire movement. First is the idea that nobody deserves or needs a billion dollars. "Why should anyone have a billion dollars," asks Manjoo, "why should anyone be proud to brandish their billions, when there is so much suffering in the world?" Second is the notion that "inequality is the defining economic condition of the tech age."

Did, say, Paul McCartney (net worth: $1.2 billion) make his pile through theft, as Robert Reich would contend? Would there be less suffering in the world if his money is expropriated and transferred to the wretched of the earth via higher taxes rather than through his own charitable donations and investments? Probably not, especially when you think about how much suffering, especially in the developing world, is the direct result of government action. More important, the creation of billionaires is a lower-order effect of a relatively free-market economy. Recall Joseph Schumpeter on this:

The capitalist engine is first and last an engine of mass production which unavoidably also means production for the masses. . . . It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls.

Schumpeter's basic description helps to explain the ubiquity of all sorts of technology, from cell phones to pharmaceuticals, all around the world. Because of massive increases in global trade, more people have more stuff and are living longer than ever before. If one indirect consequence of this is that there are more billionaires than there used to be, so be it. It's become fashionable to assert that inequality is back at Gilded Age levels and that the concentration of power and wealth and everything good and decent is in smaller and smaller hands. This is simply not a good description of the world. For the first time in history, report researchers at the Brookings Institution:

The majority of humankind is no longer poor or vulnerable to falling into poverty. By our calculations, as of this month, just over 50 percent of the world's population, or some 3.8 billion people, live in households with enough discretionary expenditure to be considered "middle class" or "rich."

About the same number of people are living in households that are poor or vulnerable to poverty. So September 2018 marks a global tipping point. After this, for the first time ever, the poor and vulnerable will no longer be a majority in the world. Barring some unfortunate global economic setback, this marks the start of a new era of a middle-class majority.

Income inequality among countries has been declining as well. The GINI coefficient, a measure of income inequality, of 146 countries that account for 95 percent of global production, declined from 67 percent in 1988 to 57 percent in 2015. Over the same time frame in the United States, it rose from 35 percent to 38 percent, an increase, to be sure, but a relatively modest one. China and India saw bigger increases, but the growth in inequality within those countries is more than overwhelmed by the absolute increases in wealth, especially among the poorest inhabitants. Click through image below for a fully functioning graph.

BruegelBruegel

Within the United States, both the right and the left like to tell a story about wage stagnation, the end of upward mobility, and the death of the American Dream. Conservatives will tell you it's all liberals' fault and you need to roll with Trump or the Republicans if you want to make America great again. Liberals make the opposite case and push wealth taxes, Medicare for All, Free College for All, Guaranteed Jobs for All, and more. Both sides are describing a false version of reality.

As Russ Roberts has shown, mobility is alive and well in the United States. The most stunning indicator comes from a study that looks at income changes for individuals between 1980 and 2014. If you simply measure statistical averages, writes Roberts,

the average income of the top 1%...went from $189,000 to $843,000, which seems to confirm the view that most of the gains from economic growth go to the richest of the rich while people in the middle or the bottom make no progress at all. But the people in the top 1% in 2014 are not the same people in 1980. What happens when you follow the same people?... The richest people in 1980 actually ended up poorer, on average, in 2014. Like the top 20%, the top 1% in 1980 were also poorer on average 34 years later in 2014. The gloomiest picture of the American economy is not accurate. The rich don't get all the gains. The poor and middle class are not stagnating.

Russ Roberts, MediumRuss Roberts, Medium

As libertarian economist Steve Horwitz writes, over the past 45 years, the consumption patterns of the poor and rich have become more similar. That's a point that gets lost if you're fixated on people in the top 0.001 percent:

Looking at consumption rather than income enables us to see both the absolute gains of poor US households and the narrowing of the gap with the wealthy. Poor US households are more likely to have basic appliances than the average household of the 1970s, and those appliances are of much higher quality. Together these three points offer a much more optimistic view of the degree of inequality and the ability of the poor to become rich. The picture is not all rosy and a final section discusses the relevance of housing, health care, and education costs to this argument.

Steve Horwitz, SSRNSteve Horwitz, SSRN

Neither Horwitz nor Roberts are panglossian; each details areas (particularly housing, education, and health care) in which outcomes could be vastly improved, typically by moving in a more free-market direction. As Schumpeter might put it, capitalism might make more billionaires, but it's achievement is creating many more things that virtually everyone can afford.

"Abolish Billionaires" is a smart slogan, but that's all it is. Figuratively lopping the heads off of the richest of the rich will not make life easier for the poor and dispossessed, and it won't increase economic growth and living standards. It might sate the bloodlust of left-wing populists for a while, but certainly that outcome can be purchased for lower cost.

 

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