“Anyone who believes we don’t have an oligarchy in America is seriously mistaken.” ranted Sen. Bernie Sanders (I–Vt.) In a speech to Congress. Today in America multi-billionaires such as Elon Musk and Jeff Bezos are enjoying joy rides on rocket ships that take them to the stars. They have bought superyachts valued at $500 million.
“The yachts that [Russian President Vladimir]What do Putin’s friends own? Guess what? They have them here too. [These people are]Sanders said, “It is possible to live in mansions that have 25 bathrooms.”
“The president has proposed a 20 percent minimum tax on those who are worth at least $100 million dollars,” said Sanders, referring to President Joe Biden’s “Billionaire Minimum Income Tax,” proposed this week, which the administration has tried to delicately portray as mere prepayment of future capital gains owed, instead of a wealth tax similar to those proposed by Sanders and Sen. Elizabeth Warren (D–Mass.). “We must go further,” he said.
Sanders’ argument is flawed. The U.S. does not have the same number of oligarchs as countries such as Russia. Campaign finance laws, which limit financial contributions and require disclosures to campaign finance laws that cap them at some level and require disclosures, prevent billionaires and millionaires from pulling the strings of political power. Though companies do sometimes successfully lobby for government contracts and subsidies—Musk’s hypocrisy has been widely documented on this front—we don’t have widespread, unchecked corporatism where the government always serves to further companies’ bottom lines, or where companies become exempt from government scrutiny for having curried favor with the right people. The belief of free-marketeers is that subsidies and other handouts should be eliminated as they cause market distortions. They artificially prop up businesses that are unable to compete or succeed on their merits.
Sanders isn’t arguing that only wealthy people can exert undue influence over the political process. Oligarch However, he suggests that wealth accumulation must not be allowed to continue. Extreme wealth is common in this country. Most of the time Inventing or founding companies that are valued highly by millions, or even billions of people is a way to do this. Jeff Bezos is worth $177billion, according to 2021 numbers. Bill Gates and Elon Musk are $151 billion each; Mark Zuckerberg $97billion; Warren Buffett $96billion; Larry Ellison $93billion; Larry Page $91.5 billion; Sergey Brin $89 billion. This process can be iterative and there will always be failures. People who are involved in the founding of a company often leave, leaving behind their knowledge and earnings to start new businesses.
These shadowy oligarchs are often portrayed as having inherited the money, or receiving it via ill-gotten gains. The data doesn’t support this. According to Ramsey Solutions, a financial planning company Ramsey Solutions, the 2021 millionaire survey found that only 79 percent had received any inheritances from their family members. Federal Reserve data shows that $719,000 was the average inheritance for those who received inheritances. Over half the countries in America that are billionaires have at least one founder of immigrant origin who arrived here as a child. Extreme wealth is not derived from inheriting money but rather by creating companies that provide value for millions of customers.
James Pethokoukis (American Enterprise Institute) pointed out this on his blog Faster, Please! Many of the companies and products we take for granted today may not be possible if a wealth tax was in place. “Would SpaceX and Tesla—combined value of an estimated $1.2 trillion—exist in a world of sharply higher investment taxes and a fat new levy on wealth?” He asks. Pethokoukis says no, citing data from Steven Kaplan (an economist at the University of Chicago).
Pethokoukis writes that Musk was the biggest shareholder when PayPal was purchased by eBay in 2002. He left with $250 million without taxes and $180 million after taxes. How did Musk spend that cash?” Well, he didn’t buy some monstrous Bel-Air mansion or pricey Picasso painting. He instead founded SpaceX, which raised $100 million in 2002 and Tesla, which brought in $80 million in 2003.
SpaceX almost collapsed in 2008 due to the financial crisis. SpaceX’s Falcon 1 rocket disasters were also close at hand. Pethokoukis describes the Falcon 1’s historic fourth flight, on September 28, 2008. It was the first commercially built liquid-fueled rocket to achieve orbit. The company was saved by it. If Musk had left PayPal with $60m less, would this launch have been possible? What if Musk had left PayPal with $60 million less? Would Tesla still have made it to 2009, and beyond? Kaplan does not believe so.
Nor does Musk, in fact.
You are right. SpaceX & Tesla would probably have died, since both narrowly escaped bankruptcy in 2008.
— Elon Musk (@elonmusk) March 30, 2022
Central planners like Biden and Sanders don’t appreciate how fragile many of today’s biggest and boldest companies—SpaceX, Tesla, and Amazon—once were. Many serial entrepreneurs who leave one company and invest the profits in another are wealthy enough to be subject to wealth taxes, regardless of whether or not they approve of the Biden plan. Two things are important to remember: They rarely have liquid wealth and often invest that wealth in other ventures, which would make them lose the tax benefits.
Biden can be comfortable accepting those unresolved losses, and should still pursue his plan. Let’s be kind to those who are trepidatious.