by Peter Franklin
Friday, 29
October 2021

How hard will America squeeze its billionaires?

The rich are getting richer — but a political backlash is brewing
by Peter Franklin

In America, millionaires and billionaires aren’t just tolerated, they’re celebrated. But that could be changing.

Thanks to surging stock values and other factors, the rich are now getting richer at truly jaw dropping rate. Earlier this week it was reported that Elon Musk made $36 billion in a single day. 

Based on figures from Americans for Tax Fairness, charts like this one are being widely shared on social media: 

Credit: Americans for Tax Fairness

Of course, these are estimates and they can be disputed. The finances of the ultra-wealthy are typically complex — making it very hard for outsiders to arrive at a definitive figure. But with stock market and other asset values rising, any well-advised billionaire will be getting massively wealthier — and doing so in the midst of a devastating pandemic. Americans for Tax Justice calculate that America’s billionaires have grown $2.1 trillion richer since the March 2020. 

The political backlash is now underway. On Wednesday, the Chair of the Senate Finance Committee, Ron Wyden, unveiled his Billionaires Income Tax, that would target billionaire holding of traceable assets like shares. Under the proposals, the tax would be payable immediately instead of being delayed until the assets are cashed-in. 

In theory, this could raise hundreds of billions of additional revenue for government. However, it’s not exactly a programme of total expropriation. According to the economist Gabriel Zucman, this is the impact it would have on the wealth of the 400 richest Americans as a percentage of national GDP: 

Credit: Gabriel Zucman

It wouldn’t even fully reverse the gains made since the start of the Covid crisis. 

Politically astute billionaires may judge that this is a pretty good deal for them. But even if Senator Wyden’s proposal becomes law, the US government should be careful before counting on all that potential revenue. 

American ultra-wealth isn’t just generated in America. For instance, US tech billionaires benefit from the tax regimes that allow their companies to make such massive profits in Europe and elsewhere. Governments in these countries are already moving to close loopholes. The sight of the US government squeezing the tech lords will only encourage their own efforts. 

Join the discussion

  • The rich like Bezos are only getting richer to such extremes is because of globalisation. Big companies can get exponentially bigger, and can get so big they can destroy any competition and dictate to governments. It’s the inevitable monopolisation that often occurs, just on a global scale. Crony capitalism, state subsidisation, lobbyists, backhanders, lack of competition. It always happens, whether it’s private or state run, because power corrupts

  • Realize that the proposed tax on unrealized gains is probably unconstitutional and is certainly totally inappropriate. Not only will be billionaires find loopholes and ways to get round the tax, but the downstream consequences may be incalculable. After all, once established for billionaires why not to millionaires, and then ultimately to anybody who holds any stock at all.
    But the fundamental problem is that the proposal entail double taxation. Let us say one has to pay 1% tax on unrealized capital gains. First, one would probably have to sell stock every year to be able to pay that which would not only rapidly deplete one’s unrealized capital but more importantly would involve also paying additional capital gains taxes on stocks that one has sold to come up with the cash to pay the “wealth” tax. Second, it fails to take into account that unrealized capital gains are vaporware. The stock market doesn’t remain constant. Yes it goes up, but it also goes down. You can bet that there won’t be rebates if one’s unrealized gains drop by 50% in a year. But they certainly can do so – all one needs to do is look back to 2008 and for that matter to Feb/March 2020. Third, such a tax is simply unamerican. It is completely unreasonable for the Government to make money off the risks made by others – i.e. the government takes all the money but bears none of the risks. The same is also true of capital gains taxes which in the US, in contrast to the UK, are not indexed for inflation. That’s important because stock held for long periods of time and then sold may appear to have made massive gains but in fact when indexed against inflation represent only very meagre gains.
    Lastly, the politics of envy which is all that this is, is simply destructive. Sure Elon Musk is unfathomably wealthy. But he deserves every penny, and when it comes to electric vehicles he is light years ahead of all the major car manufacturers. The Tesla is a combination of not only superb engineering (with 0 to 60 mph is less 3 sec) but the hardware/firmware/software controlling the car is astounding. Right now, there is only assisted driving which is very helpful on long freeway (motorway) trips, but it wont be long before driving will be on almost complete auto-pilot. And Musk is leading the way. Similarly he is leading the way in terms of rocket development and ultimately space exploration as NASA and the US Government have clearly failed to live up to their initial promise after the first set of Moon landings and space shuttle trips.
    So let Musk keep his billions. He puts it to a lot better use than any Government ever could, and in the process advances mankind (which is certainly more than can be said for the current Biden administration).

  • In what way does the existence of the ultra rich make the rest of us poorer?

    Attempts by governments to extract more money from them inevitably seem to lead to more squeezes on ordinary responsible savers

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