The Trouble with Billionaires

1. Extreme inequality threatens democracy and the planet's survival

The failure to tackle the climate change crisis is the most potent illustration of how the rise of a global plutocracy in the last few decades has profoundly changed the global power dynamic, undermining democracy to the point that the world community appears to be losing its ability to protect itself.

Concentrated wealth equals concentrated power. The dramatic increase in inequality over the past few decades has led to the rise of a plutocracy—rule by the wealthy—which poses a fundamental threat to democracy and the planet's survival. This small elite wields disproportionate influence over policy decisions, often prioritizing their own interests over the public good.

Climate change inaction exemplifies this threat. Despite overwhelming scientific consensus and public concern, efforts to address climate change have been consistently thwarted by powerful fossil fuel interests. This demonstrates how extreme inequality can paralyze democratic processes and prevent action on critical issues that affect the entire planet.

Comparison to previous crises highlights the shift. The world's successful response to the ozone layer depletion crisis in the 1970s stands in stark contrast to the current climate change impasse. This difference can be attributed to the increased power of corporate elites and the erosion of democratic institutions in recent decades.

2. Billionaires don't deserve their fortunes; society plays a crucial role

Since billionaires are now deemed to have made it on their own, they are also said to owe little back to society. Indeed, the whole notion of responsibility to society has been so denigrated that billionaires are considered deserving of their fortunes when they contribute next to nothing to society – or even when they directly imperil the public interest.

The myth of self-made billionaires ignores the crucial role of society in wealth creation. Billionaires' fortunes are built upon:

• Public infrastructure and education
• Technological advancements developed over generations
• Legal and financial systems that protect property rights
• Labor of countless workers

Societal contribution outweighs individual effort. While individual talent and effort play a role, the vast majority of wealth generation is due to the accumulated knowledge and infrastructure inherited from past generations. Economists estimate that up to 90% of today's wealth can be attributed to this "social capital."

Rethinking deservedness and social responsibility. Given society's pivotal role in enabling wealth creation, it's reasonable to expect the ultra-wealthy to contribute more back to the community through higher taxes and increased social responsibility. This challenges the notion that billionaires are entitled to keep the vast majority of their wealth simply because they played a role in its creation.

3. High taxes on the rich benefit society without harming economic growth

There is no evidence that professional athletes put forth less effort when they were paid a fraction of what they're paid today. Nor is there evidence of stifled entrepreneurship during the decades when the top marginal tax rate reached 90 per cent.

Historical evidence debunks trickle-down economics. Contrary to popular belief, high tax rates on the wealthy do not hinder economic growth or innovation. The post-World War II era, characterized by high top marginal tax rates (up to 90% in some cases), saw robust economic growth, low unemployment, and significant technological advancements.

Motivation beyond money drives high performers. Research shows that once basic needs are met, additional financial incentives have diminishing returns on motivation and performance. Factors such as professional pride, desire for recognition, and intrinsic satisfaction play a more significant role in driving excellence among top earners.

Benefits of progressive taxation:

• Funds crucial public services and infrastructure
• Reduces income inequality
• Promotes social mobility
• Stabilizes the economy during downturns
• Prevents excessive concentration of wealth and power

4. The welfare state and progressive taxation created postwar prosperity

This meant that a significantly larger share of the national income was in the hands of the rest of the population – people who, unlike the rich, were likely to spend virtually all of their incomes. Thus, the British welfare state ensured that more money was in the hands of those who would spend it on goods and services, thereby creating incentives for business to invest in producing those goods and services.

The "Golden Age of Capitalism" from 1945 to the 1970s was characterized by:

• Strong welfare states
• Progressive taxation
• Robust labor protections
• Significant public investment

This period saw unprecedented economic growth, rising living standards for the middle class, and reduced inequality in many Western countries.

Economic benefits of greater equality:

• Increased consumer demand drives economic growth
• Improved social mobility enhances productivity
• Higher levels of trust reduce transaction costs
• Better public health and education outcomes

Challenging conventional wisdom. The success of the postwar era demonstrates that high taxes and strong social programs are not incompatible with economic growth. In fact, they can create a virtuous cycle of shared prosperity that benefits both workers and businesses.

5. Neoliberal ideology has eroded social progress and exacerbated inequality

With this massive effort to reshape the discourse and politics of America, the wealthy elite was investing in a deliberate long-term strategy – exactly what Powell had called for. Just as Hayek and the IEA had done in Britain, US conservative planners, with their ample war chests, were mapping out a slow, methodical and ultimately highly effective strategy to retake control of the American public debate.

The rise of neoliberalism in the 1980s marked a dramatic shift in economic policy and social attitudes. Key aspects include:

• Deregulation of financial markets
• Privatization of public services
• Weakening of labor protections
• Tax cuts for the wealthy and corporations

Coordinated effort by wealthy elites. This ideological shift was not accidental but the result of a deliberate, well-funded campaign by business interests and conservative think tanks to reshape public opinion and policy.

Consequences of neoliberal policies:

• Dramatic increase in income and wealth inequality
• Erosion of social safety nets
• Financialization of the economy
• Weakening of democratic institutions
• Environmental degradation

6. Tax havens enable the wealthy to avoid paying their fair share

Tax havens thus facilitate a wide range of clearly objectionable outcomes – including drug and human trafficking and other forms of organized crime, embezzlement and bribery. In addition, tax havens help terrorists move untraceable funds around the world; they allow individuals to escape from professional, parental and other legal obligations; they distort world trade and investment flows; and they exacerbate financial crises by making much of the global financial system invisible.

The scale of offshore wealth is staggering. Estimates suggest that between $13 trillion and $20 trillion is held in tax havens, representing a significant portion of global wealth. This hidden wealth exacerbates inequality and deprives governments of crucial tax revenue.

Negative impacts of tax havens:

• Facilitate tax evasion and money laundering
• Undermine fair competition in business
• Increase the tax burden on ordinary citizens
• Weaken democratic accountability
• Contribute to financial instability

Solutions require international cooperation. Addressing the challenge of tax havens necessitates coordinated action among nations to implement:

• Automatic exchange of financial information
• Public registries of beneficial ownership
• Country-by-country reporting for multinational corporations
• Stronger enforcement and penalties for tax evasion

7. A Financial Transaction Tax could curb speculation and raise revenue

It's hard not to love the FTT: it could raise billions of dollars a year from financial speculators, hampering their ability to destabilize markets, while leaving genuine investors unharmed – like a miracle drug that targets cancerous cells while leaving the healthy surrounding tissue undamaged.

The power of small taxes on high-volume transactions. A Financial Transaction Tax (FTT) of just 0.01% to 0.1% per transaction could:

• Discourage excessive speculation and high-frequency trading
• Generate significant revenue for public investment
• Improve market stability and efficiency

Targeting harmful speculation. The FTT would have minimal impact on long-term investors while significantly affecting rapid, high-volume trading that often destabilizes markets and provides little social value.

Benefits beyond revenue generation:

• Reduces the size of the bloated financial sector
• Encourages investment in productive enterprises
• Improves market transparency
• Helps prevent financial crises

Despite its potential benefits, the FTT faces strong opposition from the financial industry, highlighting the need for public pressure and political will to implement such reforms.

8. Reviving progressive taxation is key to reducing inequality and preserving democracy

Reviving a healthy contempt for excessive greed and extreme inequality – along the lines of Smith's critique – would help restore a saner approach to unwarranted wealth concentration, and provide an important social restraint on corporate boards and legislators.

Reclaiming the moral high ground on taxation is crucial for addressing inequality. This involves:

• Challenging the notion that all taxes are inherently bad
• Highlighting the social benefits of progressive taxation
• Exposing the self-interest behind anti-tax arguments

Key tax reforms to consider:

• Increasing top marginal tax rates on high incomes
• Closing loopholes and eliminating tax breaks for the wealthy
• Implementing a wealth tax on extreme fortunes
• Supporting international efforts to combat tax havens
• Introducing a Financial Transaction Tax

Broader cultural shift needed. Beyond policy changes, addressing inequality requires challenging the cultural acceptance of extreme wealth concentration and promoting a vision of shared prosperity and social responsibility.

Last updated: October 8, 2024