When Bernie Sanders talks about ‘the billionaire class,’ he speaks in a similar tone that an actor in an R rated movie would say the F word. He has clearly hit a nerve in American politics and is performing shockingly well in the polls. Wages have not risen with productivity, and the wealth gains among the working class pale in comparison to those of the top 1%. America’s top 25 hedge fund managers make more money than all the kindergarten teachers in America. Mitt Romney’s tax rate is not even 15%, and Warren Buffet pays less in taxes than his secretary. For all these reasons, we should tax the rich at confiscatory levels and put their heads on figurative pikes right? Billionaire is the new four letter word, but it shouldn’t be. Here’s why.
No Wage Gains, But We Have Facebook and the iPhone
I really dislike how statistics are used, despite the fact that I majored in the subject in college. You can use numbers to prove any point that you like, and wealth inequality statistics are being used irresponsibly. The billionaire class in America is a big difference between us and Venezuela. Our millionaire class is a big difference between us and Denmark. There’s a reason you see so little innovation coming out of Europe. It’s because of an inhospitable business and tax climate. Europe has more of everything Bernie Sanders wants: extremely high death taxes, higher capital gains tax, top marginal tax rates that take more than three quarters of high earners’ income, etc. However, when is the last time you heard of an Apple or Facebook coming out of Europe? You might struggle to name a single innovative company that started there in the past 50 years.
Would you have a similar problem naming a successful Asian company? Samsung, Toyota, Kia, Hyundai, Mitsubishi, Lenovo, LG, Sony, and Toshiba are all known for their incredible technological innovation. Asia is a fertile ground for billionaires, and it’s also a fertile ground for new ideas. The only new ideas coming out of Europe at the moment seems to be negative interest rates (the one exception, Japan, seems to be able to trace its economic woes to bad immigration policy rather than bad economic policy).
One problem with the way politicians like Bernie quote wealth statistics is that a phone 20 years ago is not a phone today. Back in the early 90s, your cell phone was the size of a boombox and had to be plugged into your cigarette lighter. Even then, you might pay an exorbitant fee to use it so it was only practical for emergencies. Now we have phones the size of a Starbucks yogurt parfait that are 100 times as powerful as our desktop computers 10 years ago. Who made that possible? A billionaire named Steve Jobs.
Back in the early 2000s, if you wanted to communicate with friends overseas you had few convenient options. You sent emails, used IM, or sent texts. If you were lucky, your parents didn’t disown you when they got the bill. Now we have Facebook, which allows us to video call anywhere in the world and send messages to strangers we just met for the small price of seeing a few ads every now and then. That innovation was because of Mark Zuckerberg.
Wealth statistics will tell you that 20 years ago, American workers could buy 100 phones. Today, they can still buy 100 phones. In contrast, 20 years ago billionaires could buy 2 million phones. Today they can afford to buy 5 million phones if they wanted. Clearly, the answer is to redistribute the 5 million phones to the workers via the ballot box to reduce inequality right?
However, what if the incentives to create brand new high functioning phones was reduced by confiscatory tax policy? What if investors got taxed twice on capital gains and dividends at the corporate income tax rate and a new 75%+ rate Bernie is proposing? Risking capital in that case becomes a losing proposition. Businesses will lean on their already existing products and shy away from as much innovation. Sure workers might go from being able to afford 200 phones instead of 100. However, they would be using a Samsung S2 instead of an iPhone 6S. After all, why risk capital when the marginal return on your money is so low? If billionaire is the new four letter word, fewer of them will invest their money in research and development because of limited reward.
Other Examples of Billionaires’ Profit Motive Making Workers Better Off
Advances in other fields show that workers today are far better off than workers of yesterday. We have high definition TV screens available now that make the $3,000 models of yesteryear look like $50 craigslist TVs. Lawn mowers don’t demand you rip off your right arm getting them started. New surgical techniques with robots allow patients to recover in a fraction of the time.
Netflix, Hulu, and Amazon Prime have redefined what it means to watch video content in the absence of crushing governmental intervention. While we used to just have NASA, now we have multiple billionaires vying to offer interspace civilian transport. Instead of groceries taking up 10% of the family budget like they did in the 1950s, now they only take up about 4%, in no small part thanks to the genetically modified food techniques of big companies like Monsanto.
Remember when we got involved in the war in Iraq? The headline reason was WMDs, but most people feel now that the decision to get involved was influenced heavily by protecting world oil supply. In 2004, the presidential campaign stressed the importance of getting rid of our addiction to foreign oil. By 2016, you haven’t heard a politician comment on that at all. Why is this? It’s because of businesses like the one owned by the Koch brothers, who have unleashed a domestic energy boom in fracking. This energy revolution, possible because the regulations to stop it hadn’t been dreamed up yet because the technology was so new, has placed America back on top of the world’s largest energy suppliers. All of these things were accomplished by billionaires.
Where It Is Fair to Criticize Billionaires
With the unlimited contributions now allowed by Citizens United, Bernie is right that billionaires now have an outsize voice in American politics. However, he should be thrilled that money does not buy elections, as the incredibly disappointing but well-funded campaign of Jeb Bush has shown. There is a big difference between America’s billionaires’ involvement in the political process of this country compared to others. There is diversity of opinion present here. For every George Soros, you have a Sheldon Adelson. Billionaires are not monolithic. For ever Warren Buffet arguing for high taxes you have an equally eloquent Steve Forbes arguing against it.
I think it is very reasonable and important that SuperPacs and other funnels for campaign contributions be required to disclose donations from big supporters. It’s only fair to know as citizens who is trying to influence our votes, be it Wall Street, Big Oil, Big Corn, or another group. There are certain pet issues that politicians will refuse to oppose because of special interest donations. While that’s truly unfortunate, over time bad policy gets replaced by good policy. Just look at the fight over Boeing’s corporate welfare from the Export Import Bank.
When billionaires try to stay private when they attempt to sway private citizens, I laugh. If you want to get involved in politics and are donating millions to make your voice hear, everything is fair game. Your business record, personal ties, and ethical background can and should all be targets in American politics. That kind of scrutiny will prevent blue chips like Nike or Google from trying to tip the scale in their favor because of the loss of business that might result from a one sided political endorsement.
Billionaire Is the New Four Letter Word Because People Don’t Understand Economic Growth
Supple side economics sounds like a joke. Give money to the rich and somehow it makes it way down to the middle class and working poor. Using this common sense argument, Democrats have been able to advance big tax increases under the Obama administration. Under a Bernie Sanders administration, from the tone of his campaign, billionaires would be enemies of the state. Some have used the system unfairly to their benefit, but many more have created life changing companies like Twitter, Instagram, Uber, Lyft, FreshDirect, Trader Joe’s and non-profits like Khan Academy.
Today thanks to Michael Dell, Bill Gates, and Steve Jobs I can buy a powerful laptop computer for under $400. I just got a Megabus ticket to travel around 500 miles for about $10. I’m flying from Panama City, Panama to Orlando for about $180.
Thanks to the government, I now have ‘affordable healthcare.’ Except, my application got rejected after the system couldn’t handle self-employment income verification. My health care premiums went from $80 a month to over $200 a month and I lost my old family doctor.
Based on my experience using an iPad, Dell laptop, or Samsung phone versus my experience with the Obamacare exchanges, I side with billionaires over government every time. Billionaires are self-interested, but they are single handedly responsible for a huge percentage of the innovation and economic growth in America. Once more, they balance each other out. Without Rockefeller, Carnegie, and JP Morgan, the US would not be the world power it is today. Without Zuckerberg, Jobs, and Page, America would not have retained its hegemony in the new century.
In ethnically diverse countries with a lot of government, the wealthy often got that way by receiving a monopoly or being connected politically. In America, a 20 something college kid can become one of the richest people in the world within 10 years. Billionaire is the new four letter word in America now, but that word should be hope: for America’s future and technological progress of the world. Not the vulgarity that Senator Sanders’ intonation implies.
Should billionaires pay more in taxes? Are real wages truly stagnant despite the obvious differences between the iPhone 6S and the Nokia car phone of yesteryear?