Democrats’ proposed wealth tax spells doom for entrepreneurs and economic growth
Story by Parker Sheppard, Richard Stern
The new bill is called the Oppose Limitless Inequality Growth and Reverse Community Harms Act — the OLIGARCH Act, get it? It would introduce an entirely new tax on wealth above $120 million, starting at 2% and climbing to 8%. This new tax would be in addition to the income tax.
Rep. Barbara Lee (D-CA) claims the legislation is designed to “tax extreme wealth, reduce inequality, and combat the threat to democracy posed by aristocracy.” But it would more accurately be described as an economic devastation bill. Indeed, it should alarm anyone who wants to start a business, build up wealth for retirement, leave an inheritance for their children, or just see the economy grow for everyone.
First, let’s examine the practical effects of the bill. Consider Jeff Bezos, who has a net worth of around $155 billion. Under the OLIGARCH Act, he would owe about $9.7 billion at the end of the year.
Does Bezos have that amount just sitting in a bank account? No, his wealth is tied up in businesses and real assets. Redistributing Bezos’s wealth requires disrupting Amazon’s business operations. He would have to sell shares to pay his tax bill, which would make it harder for Amazon to raise capital, create jobs, provide selling opportunities for other businesses, and scale its operations to lower prices for customers. The result would be decreased availability of goods and increased costs for tens of millions of American families.
The bill’s authors make the cavalier assumption that wealth is simply a pile of gold that the wealthy sit on — that it’s just sitting around, waiting to be taken and redistributed. That’s nowhere near the case. Almost all the wealth of the people targeted by this bill is tied up in businesses that produce goods and services, provide jobs, and drive the innovation that raises our standard of living.
The bill would also discourage future entrepreneurs. What about the next innovator working in a dingy office with an old door for a desk and his company’s name badly spray-painted on a nearby sign? How many entrepreneurs would be willing to risk their savings, to hustle and grind to bring a product to market when the government will just tax away their reward for their hard work? The inventions and innovations that produce “extreme” wealth would likely never come to fruition.
However, the true problem with this bill is much deeper than its economic effects. The bill’s authors fundamentally misunderstand wealth and its value to society. They assume that wealth is bad, that extreme wealth is worse, and that it’s the government’s job to stop people from getting too wealthy.
They have it exactly backward. Building wealth is something to be lauded and celebrated, and the government should let each of us get as wealthy as possible. Everyone’s lives have improved, especially those at lower income levels, thanks to innovators and pioneers whose passion for doing things smarter, better, faster, and cheaper resulted in them creating things no one thought possible.
These entrepreneurs and inventors got rich because they cured diseases, perfected treatments, invented safer tools, brought conveniences to the mass market, and improved the lives of millions of people other than themselves. The wealth they accumulated reflects the value they created. Moreover, their wealth allows them to continue to guide their businesses or to invest in the dreams of other innovators, passing on their knowledge to the next generation.
Consider the case of Gary Michelson, the billionaire spinal surgeon. Michelson built his wealth by developing breakthrough tools and methods of spinal surgery after seeing his grandmother afflicted with neurogenic spinal degeneration. His work made spinal surgery safer and more consistent, increased the longevity of spinal implants, and reduced recovery time for patients. His inventions were so prolific that he eventually accumulated more than 900 patents to his name, which he later sold for more than $1 billion.
Michelson then used his wealth to found a multitude of charitable organizations that direct funds to promising medical research, fighting neglected diseases, making college more affordable, and improving animal welfare.
In fact, most of the world’s biggest charitable organizations were founded by “extreme” wealth. Under the wealth tax in the OLIGARCH Act, those charities wouldn’t exist, or they would be a shadow of themselves.
In total, innovators only end up getting a fraction of the benefits from their breakthroughs. The bulk of the value benefits the rest of us through newer and cheaper products, which continue to raise our standard of living.
An honest accounting of successful entrepreneurs in America should focus not on the wealth some have accumulated but on the multitude of benefits that their work brings to society as a whole.