Saturday , December 7 2019
Home / Roger Farmer's Economic Window / Taxing Billionaires

Taxing Billionaires

Summary:
I just read a fascinating twitter exchange between @Noahpinion and @gabriel_zucman. My scoring so far: Noah: 10: Gabriel: 0 Gabriel argues for taxing billionaires immediately based on the principle of “ability to pay”. Noah asks if his reasoning is based on some unarticulated moral principle; or is it on practical grounds. The State needs the ...

Topics:
Roger Farmer considers the following as important:

This could be interesting, too:

Bradford DeLong writes Brandy Clark: Big Day In A Small Town: For the Weekend

Bradford DeLong writes Brad DeLong's Grasping Reality 2019-12-07 02:18:34

Greg Mankiw writes The Case for Capitalism

Bradford DeLong writes Brad DeLong's Grasping Reality 2019-12-06 18:22:14

Taxing Billionaires

I just read a fascinating twitter exchange between @Noahpinion and @gabriel_zucman. My scoring so far:

Taxing Billionaires

Noah: 10: Gabriel: 0

Gabriel argues for taxing billionaires immediately based on the principle of “ability to pay”. Noah asks if his reasoning is based on some unarticulated moral principle; or is it on practical grounds. The State needs the revenue today, for example, and the intertemporal capital markets are imperfect. Gabriel avoids the question and scores three parrots (out of three) on my newly invented epigone scoring system for repeating himself without answering the question.

I suspect that Gabriel’s answer to Noah, which he resists articulating, is that he believes the argument for taxing immediately to be moral.

There is a better answer.

The ownership of wealth, whether or not the income from that wealth is converted into a taxable income flow, may be converted into influence over social and political institutions. The primary way this happens is through the creation of non taxable foundations with charitable status. There are many such institutions that support a diverse range of activities. And the goals of the institutions are not goals that we would all support. The charitable aims of foundations funded by the Koch brothers, for example, are not the same as the charitable aims of those funded by George Soros.

My views on whether this is a good thing have shifted. I wrote a piece in the Guardian in 2014 which predicted the current fervor to tax the wealth of the billionaire class. I argued in 2017 in favor of a modest wealth tax, an idea picked up by Martin Sandbu in the FT. But the calls for expropriation, coming from the self-immolating wing of the Democrats, will inevitably be self defeating.

I do not subscribe to the attempt to impose equality of outcomes. Human beings are diverse creatures with an amazing range of talents and abilities. Market economies operate within institutional frameworks that are constantly evolving. In the past, we designed ways of moderating markets to ensure that the inequality that is inherent in capitalism is not so extreme that the institution destroys itself. Those moderating mechanisms are in need of reform as wealth inequality is again approaching levels deemed unacceptable by the average citizen.

Part of the problem, is that the growth of social media companies is generating wealth in the form of capital gains rather than dividends. The solution is to tax capital gains at the same rate as ordinary income as I argued here in Project Syndicate. It is not to appropriate the wealth created by these companies. And I do not myself, see a moral argument for leveling the wealth of every member of society to the point where we are all homogenized.

There is no indication from the observation of Mao’s China or the former Soviet Union that wealth redistribution on a massive scale by the State leads to equality of outcome for the citizens of those societies.

Government is not a benevolent institution. It is an alternative form of power hierarchy in which the power of billionaires to influence our lives is replaced by the power of politicians. Whatever their rhetoric, and however superficially accountable they are through an imperfect electoral process, politicians are ultimately acting in their own interests.




Roger Farmer
ROGER E. A. FARMER is a Distinguished Professor of Economics at UCLA and served as Department Chair from July 2008 through December 2012. He was the Senior Houblon-Norman Fellow at the Bank of England, January-December 2013.

Leave a Reply

Your email address will not be published. Required fields are marked *