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“Economic inequality has moved to the top of the political agenda in many countries, including free-market poster children like the US and the UK. The issue is mobilizing the left and causing headaches on the right, where wealth has long been viewed as worthy of celebration, not as demanding justification. But today’s concentrations of wealth do demand justification.
As contenders in the Democratic primary for the 2020 US presidential election, senator Bernie Sanders and senator Elizabeth Warren have promised to impose new taxes on the super-wealthy. Warren’s wealth-tax proposal—a levy of 2% on every dollar of net worth above $50 million, rising to 6% for fortunes greater than $1 billion—has ruffled billionaires’ feathers. According to Gates, he has paid more in taxes than almost anybody—some $10 billion. And while he would consider it “fine” if that figure had been doubled to $20 billion, he believes a much higher tax would threaten the incentive system that led him (and others) to invest in the first place. For his part, Michael Bloomberg, the founder of the Bloomberg news empire and now a Democratic presidential contender himself, argues that a wealth tax might be unconstitutional, and that it would turn the US into the likes of Venezuela. And Facebook founder and CEO Mark Zuckerberg has suggested that taxing billionaires’ wealth would lead to worse outcomes than leaving it where it is.
Note the sense of entitlement underlying each of these reactions. Each man’s billions, we are told, belong to him; he earned the money and should therefore get to decide how to spend it, be it on philanthropic projects, taxes, or neither. The billionaires tell us that they are willing to pay a fair share of taxes, but that there is some undefined threshold where the incentives to innovate and invest will be thrown into reverse. At that point, apparently, the ultra-wealthy will go on strike, leaving the rest of us worse off. But this perspective ignores the fact that accumulated wealth is largely a product of law, and by implication of the state and the people who constitute it. As economist Thomas Piketty demonstrates in his 2014 book, Capital In The Twenty-First Century, the rich today hold most of their wealth in financial assets, which are simply legally protected promises of future cash flows. Take away legal enforceability, and all that remains is hope, not a secure asset.”
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