Ignore the Rich, Don’t Loot Them

Apparently to illustrate that the state of California has little interest in controlling its fiscal profligacy or in protecting the property rights of anyone who can be demonized as rich, a union-backed state ballot initiative titled “The Billionaire Tax Act” has been proposed.

It would not only be punitive, but far more so than generally reported, due to a largely overlooked detail that would count a share of stock with, say, 10 votes (one way large owners can maintain control of their creations), as being 10 shares of stock in calculating wealth (see Section 50303, 3C, of the text of the initiative). It would introduce a cornucopia of constitutional challenges and serious measurement and implementation issues, which have led most countries that have imposed wealth taxes to abandon them. It would also be retroactively applied to people who have abandoned residency in the “Golden (Goose) State,” provided they were residents at the beginning of this year, despite the fact that ex post facto taxation cannot possibly be fair to those taxed.

The demonization of those who would be hit—the small number of Peters—to support the far larger number of Pauls designated to get the money has even been extended to what has been called a “March for Billionaires,” reportedly with about a dozen participants, which attracted a few dozen supposedly humorous counter-protesters, to make fun of “the plight of the ultrarich,” with their “let them eat cake” mocking seemingly standing for a “a political majority makes right because a political majority determines the might” political philosophy.

This is just the latest demonstration of an increasingly common political phenomenon. When some group wants more resources without having to benefit others to do so, they shift the focus from the theft that would be involved to “the rich” they promise will pay for the theft. That replaces a focus on how sensible government fiscal choices are with a focus on the politics of envy, as when March for Billionaires counter-protester Razelle Swimmer, wearing an apron that read “Eat the rich,” said, “If they aren’t willing to pay more taxes, then I don’t really care if they leave.”

Unfortunately, acting as if such envy-fueled punishment of “the rich” is a justification for policies is light years from producing good policies. That envy triggers all sorts of restrictions that hinder the incentives for wealthy people to use their substantial assets in the service of others. A better approach would be for us to “ignore the rich,” because, if we did so, we would instead focus on the benefits produced for everyone else and we would have far better policies and far broader benefits for society.

Very large wealth taxes—in addition to the host of current taxes—will undermine economic growth and the benefits it provides for others. Wealth taxes have been tried before, to little success, and often abandoned for ineffectiveness, because—as economists are famous for repeating—“incentives matter.” Being able to retain a larger share of the gains produced gives even rich people more incentive to use their sizable assets to benefit others. That is why the wealthy do more for others with their resources when they face lower taxes and do less for others (including by leaving the taxing jurisdiction) when they face higher burdens. We must also remember that wealth taxes don’t only deter the currently wealthy, but also reduce the productive incentives of those seeking to become wealthy by doing better for others.

As Leonard Read—founder and leading light of the Foundation for Economic Education—described it in his “The Free Market Ignores the Poor,” in FEE’s 1962 Cliches of Socialism:

…the free market…is “no respecter of persons.” It is an organizational way of doing things featuring openness, which enables millions of people to cooperate and compete without demanding a preliminary clearance of pedigree, nationality, color, race, religion, or wealth.

It demands only that each person abide by voluntary principles, that is, by fair play. The free market means willing exchange; it is impersonal justice in the economic sphere and excludes coercion, plunder, theft, protectionism, subsidies, special favors from those wielding power, and other anti-free market methods… It opens the way for mortals to act morally because they are free to act morally.

Of late, we would hear as a complete rebuttal to Read’s analysis that since markets do not solve every problem, their flavor-of-the-month government intervention “solution” is justified. But, as Thomas Sowell famously parried such claims, in a world of unavoidable scarcity, for public policies, “there are no solutions, only tradeoffs.”

What gets misplaced when envy becomes the faulty justification for all manner of such government actions is not just the theft involved, but the undermining of productive incentives created. It also ignores that moving decisions to government decision-makers moves them to those with worse information and worse incentives. Those dictators of different answers than we would choose for ourselves care about citizens less than citizens care about themselves and they know less than citizens do about their preferences and abilities and the tradeoffs they would willingly make. That does not produce better answers than letting people make their own voluntary arrangements.

As Leonard Read summarized the result of such freedom, “all observation confirms that the poor fare better under these circumstances than when the way is closed, as it is under socialism.” That is why we must also remember that “nor should we assume that when armed with power, our behavior will suddenly become more moral.”