How Not to Fight the 1%

In an article that will no doubt make “progressive” hearts go pitty-pat (“The 1% May Be Richer Than You Think, Research Shows,” Bloomberg, August 7), Jeanna Smialek suggests that top 1%’s wealth is far greater even than official statistics indicate – and that because so much of that wealth is hidden in offshore tax havens government efforts to reduce inequality through tax and welfare policy are thwarted.

In the interest of fairness, Smialek quotes Tyler Cowen’s statement that “[p]eople worry about the top one percent too much,” that it doesn’t matter how rich Bill Gates is if “the poor are becoming better off in the process.”

That’s a big load of horse manure. If Gates’s wealth comes from robbing everybody else, then the inequality sure as heck does matter. Everyone else is made worse off than they otherwise would have been — by definition — by the exact amount that Gates robbed them of.

And that’s exactly how Gates got his fortune: By robbing his customers. Absent state-enforced copyright and patent monopolies on Windows, he’d have to make money in the same way a Linux distro does, providing tech support and customization services for software that in itself was free. Let’s be generous and say he might accumulate $10 million. That’s about 1/10,000 of his actual peak fortune of $100 billion. That means all but one hundredth of one percent of Gates’s wealth is stolen.

Now, you might think this strengthens Smialek’s case for better tracking and more progressive taxes on wealth. But in fact it does just the opposite. The only way justice could be done would be for Gates’ loot to be taxed at 99.99%, which would leave him roughly the amount he earned honestly. And the same can be said of fortune in the hundreds of millions or billions. There’s simply no way to get that rich any way but robbery. But the highest any major Democratic player would tax the ultra-rich is, what, 40%? And that’s before all kinds of deductions and credits they support. I doubt even Elizabeth Warren would support a top marginal rate on billionaires as high as 50%.

And to tax income (including returns on wealth) even that high would require an enormously difficult and expensive enforcement apparatus that would be unsuccessful a lot of the time.

And the smartest part of the plutocracy supports higher marginal tax rates because, as corporate capitalism is structured, they’re the only way to ever worsening depressions from the chronic tendency of the wealthy to over-save and over-invest, the surplus investment capital on their hands with no profitable outlet driving down the rate of profit, and the idle industrial capacity from aggregate demand shortfalls. That’s why corporate CEOs like Gerard Swope of GE supported the New Deal. The state — their state — was acting to ensure the long-term survival of capitalism and at the same time guarantee that the plutocracy would keep the maximum sustainable portion of their stolen loot. That’s also the motive for “progressive billionaires” like Gates and Warren Buffett.

But bear in mind, again, that all that enormous wealth is achieved through the state — the billionaires’ and corporations’ state. All that wealth comes from rents on state-enforced artificial property rights, artificial scarcities, monopolies, regulatory cartels and entry barriers (except the part that comes from direct taxpayer subsidies).

So for the state to expend enormous resources on tax enforcement to modestly increase taxes on ill-gotten wealth obtained entirely through the state in the first place is a pretty clumsy and indirect way of doing things. And most of the state’s spending enabled by that revenue will be aimed at promoting the pathological economic model by which they got that wealth in the first place: subsidies to car culture and sprawl, subsidies to long-distance shipping and inefficient large-scale production, military spending to utilize surplus industrial capacity and soak up excess capital, the use of “intellectual property” law to reinforce planned obsolescence and waste … not to mention giving the poorest of the poor back a small portion of what was stolen from them to prevent revolution and create aggregate demand to keep the wheels turning.

Why not instead eliminate all the state-enforced monopolies in the first place, and all those other perverse things the state does to help the rich and promote waste and inefficiency? The rich can’t move that stolen loot to tax havens if they never make it in the first place.