How rich does anyone need to be?
Elon Musk has a gift for prompting questions about how we should order our world. His latest contribution to the debate is a threat to shift incorporation of his electric-car maker, Tesla, from Delaware to freedom-loving Texas, after a Delaware judge annulled his $55.8bn pay deal — the largest in American corporate history, or possibly all history.
The questions this time: how rich does anyone need to be? Should countries raise taxes on billionaires? I reckon so. It would improve our societies and reduce ordinary people’s taxes. Exactly how to do it differs by jurisdiction, but the starting point is to establish the principle of taxing billionaires.
Any discussion requires dismissing silly arguments. Those who support these taxes often argue that billionaires are bad people. Some of them probably are, while others aren’t. It’s irrelevant. We don’t tax character. We should likewise ignore opponents of these taxes who cry “politics of envy”. The psychology behind the proposals is irrelevant, as Ingrid Robeyns argues in her new book Limitarianism. Feel free to diagnose me as jealous of billionaires. That doesn’t change the question: would taxing them benefit society?
Well, their numbers are growing, and they are relatively undertaxed. Forbes magazine last year identified 2,640 billionaires worldwide, up nearly 19-fold since 1987. Global wealth has grown faster than incomes, and billionaires’ wealth has grown fastest of all, reports the EU Tax Observatory.
Billionaires, aided by tax-dodging, pay lower effective income-tax rates than average American and French wage-earners, says the observatory. And wealth taxes barely exist. In short, states should tax billionaires because that’s where the money is. Anyone fleeing a country’s wealth tax, such as the rich Norwegians who recently moved to Switzerland, could be charged an exit levy.
Many high-income earners — bankers, lawyers, small-business owners — oppose billionaire taxes, fearing a slippery slope: “First they came for Elon . . . ” In fact, these people could benefit from billionaire taxes, as they shoulder so much of the tax burden. The French economist Thomas Piketty proposes tax rates of 90 per cent on wealth of more than €2bn. He notes that the US taxed most of the earnings of very rich people at around those rates from about 1950 to 1980, an era of impressive economic growth. Piketty says taxing billionaires would allow governments to cut property taxes, which are, in effect, wealth taxes on ordinary people. Governments could also use the proceeds to create trust funds for people in the bottom half of society, who typically own almost no wealth. True, governments wouldn’t spend with perfect efficiency to enhance human wellbeing. But neither does Musk.
Leaving him with $2bn or so would hardly be punitive. This isn’t the Bolshevik revolution. His haul would still be enough to inspire future innovators. Taxation could even do Musk’s descendants a favour. Rich heirs I’ve encountered suffer from purposelessness, fecklessness, endless hours spent on tax avoidance, family rifts over who gets what, anxiety (often justified) that everyone wants to rip them off and fear of public spaces.
I suspect that Musk’s desire for the $55.8bn stems from an obsession with “his number” or estimated wealth, currently at about $200bn. A wealthy European friend suggests this obsession is strongest among rich Americans. Their “number” often becomes their identity, whereas rich Europeans probably derive identity more from old-fashioned class markers such as family background, schooling or cultural tastes. Many US billionaires support Donald Trump’s return to the presidency because his tax cuts would preserve their own numbers. They are missing the headline: Trump’s contempt for elections and the rule of law threatens the societal stability essential to preserving wealth.
Taxing billionaires has recently become more feasible. Since 2017, an automatic, multilateral exchange of bank information, now applied by more than 100 countries, makes it harder to hide money. And taxing so few people is administratively simple. The EU Tax Observatory estimates that a 2 per cent, EU-wide wealth tax would raise $42bn a year from the bloc’s 499 billionaires. A more ambitious tax would extend to the billionaire-adjacent.
A wealth tax in the US might be ruled unconstitutional, but the government probably could adjust people’s income taxes depending on their wealth. Otherwise, the US could raise estate taxes, tax vast unrealised capital gains and close tax loopholes designed for rich people. It’s doable. States haven’t done it partly because billionaires have captured many political systems. That’s another reason to reduce their wealth.
Follow Simon @KuperSimon and email him at simon.kuper@ft.com
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