It used to be said that behind every great fortune lay a great crime.
What, pray tell, is Reed Hastings’s great crime? Or Jeff Bezos’s epic caper? Or even Bill Gates’s?
As you think about the current obsession with the sins of billionaires — “every billionaire is a policy failure,” says the ex-marijuana lobbyist Dan Riffle, who is now running Rep. Alexandria Ocasio-Cortez’s staff, and even The New York Times’ op-ed page at least entertains the case to “Ban Billionaires” — consider this:
You know the famous Honoré de Balzac quote you’ve read about every great fortune being the product of a great crime? It’s a misquote, contained in the novel “The Godfather,” which seems to have been the idea’s passageway to mainstream culture.
Balzac actually married a countess. So the next time you meet poseurs talking about wealth, well…
Instead, great fortunes in our time — hedge funds markedly aside — come from creating something of great utility.
Mike Bloomberg revolutionized Wall Street data. Sergey Brin was liberated from the Soviet Union and co-created Google
which does a not-small amount to make tyranny unsustainable. Amazon.com
didn’t demolish Mom and Pop bookstores — founder Jeff Bezos demolished Borders and other chains by lowering prices and getting big enough to make $10 billion in profit last year anyway.
founder Reed Hastings broke the monopoly of video stores that only made money by charging late fees on VHS tapes — his innovations first obsoleted the late fee, and later the closed ecosystem of Hollywood, multiplying everyone’s viewing choices and creating tens of thousands of performing and production jobs on streaming movies and shows.
At each turn, these companies demolished businesses much bigger and more powerful than themselves, by building better mousetraps and saving customers work, money, or both.
Critics who cry antitrust about the new billionaires weren’t there for the early days.
By their logic, Microsoft’s anti-competitive practices in the 1990s were supposed to make Yahoo, let alone Google, impossible. They weren’t. And people crying about the government having let Facebook
buy Instagram, for example, forget that Instagram had no material revenue when Facebook bought it, and people thought Facebook overpaid at $1 billion.
For that matter, Mark Cuban insisted for years that Google would never get its $1.6 billion back for YouTube. Whoops.
If Riffle thinks any of these are policy failures, he’s been smoking too much.
So let’s consider the idea that wealth concentration might be more complicated than current politics suggest. And come up with less-emotional solutions than the wealth tax Sen. Elizabeth Warren has proposed, or the 70% top income tax rate Ocasio-Cortez has backed, not because 70% top rates on super-rich folks will produce much revenue (they won’t, because too few people would qualify) but basically to provide a slogan about greed.
Instead, let’s remember a Democratic Party less caught up in being the enemy of the enemy (President Donald Trump, naturally) has actually, and recently, delivered both prosperity and declining after-tax inequality. And let’s tax enough to do things that lift up the middle class — and worry less about whether someone else has a dollar Riffle thinks they didn’t earn.
Under both Bill Clinton and Barack Obama, the Standard & Poor’s 500
tripled and wage growth and median-household income handily topped inflation once their policies had a chance to work. Good for workers, savers — and would-be 401(k) millionaires.
Here are some ways to make it happen again.
Bring back Clinton’s tax code
First, restore something very much like the Clinton-era tax code.
Believe it or not, absent the tax cuts of Presidents Trump and George W. Bush, the federal budget would be nearly balanced rather than $1 trillion in the hole this year. Undoing both would mean, more or less, making the tax code what it was under Bill Clinton, who presided over the best economy of most Americans’ lifetimes.
And it would give policy makers more tools to fight the next recession when it comes.
The idea that a 39.6% top rate (from 37% now) would crush job creation would come as news to job creators like Gates, Hastings, and Berkshire Hathaway’s
Warren Buffett — all of whom have said their taxes should rise. Even a little higher than 40% on the very top is OK. (Sanders has proposed 52% in the past; I’d treat 50% as a bright line, and prefer 40%, but that’s me.)
Second, raise capital gains and inheritance taxes, and eliminate pass-through deductions from 2017’s tax bill. The worst part of GOP tax handiwork since 1980 — by far — has been its insistence that certain kinds of income are magical, so much more valuable than what worker bees produce that they shouldn’t be taxed at all, or ever-so-lightly.
Atop the list are capital gains taxes and inheritance taxes, but the Trump tax bill’s exclusion of 20% of income from “pass-through businesses” from taxation is also egregious.
Want to rein in absurd accumulations of wealth by hedge-fund managers who don’t operate businesses? Tax their top income at 40% to 45%, with a small transaction tax on trades, rather than favoring capital gains and carried interest income they earn. You don’t have to go to 70% to pay for things the middle class needs. Just stop undertaxing “magic income.”
What we could do with the revenue
The pass-through loophole alone costs $58 billion this year, according to the congressional Joint Committee on Taxation. That’s more than making state-university education tuition-free would cost. Which one would create more wealth — giving doctors a tax cut of up to 20% on income up to $315,000, or sending more young people to college? (Psst: There are lots more doctors than billionaires).
Preferential treatment of dividends and capital gains income costs $130 billion a year, the JCT says. For about that amount, according to Democratic Senate Budget Committee staff, you can choose between an expansive infrastructure bill, nearly ending poverty in America, or universal preschool.
And if you did all this, you’d still shrink the deficit.
So, two cheers for Facebook
Google and the rest. They didn’t slaughter their rivals because they’re useless, or because the government created their monopolies. The third cheer comes when we tax them appropriately — again.
What you don’t want to do is abolish Google or Amazon, and especially not the ecosystem that created them, which is based, candidly, on the opportunity to get rich. Venture-capital backed businesses have created 4 million jobs and account for 44% of research and development spending by U.S. public companies, according to researchers at Stanford and the University of British Columbia.
That, Mr. Riffle, would be a policy failure. And kind of a crime.