A mantra popularized by Bernie Sanders and like-minded progressives declares “billionaires should not exist.”
The statement serves as both a declaration of the “immorality” of wealth inequality as well as a justification for steep confiscatory taxes on wealth favored by the likes of Sanders and Elizabeth Warren.
While on the campaign trail last year, Sanders said, “I don’t think that billionaires should exist,” adding that his tax proposal “does not eliminate billionaires, but it eliminates a lot of the wealth that billionaires have, and I think that’s exactly what we should be doing.”
The goal, according to Sanders, is to “reduce the outrageous and grotesque and immoral level of income and wealth inequality.”
Reducing inequality starts with the state taxing away wealth from those in possession of an unacceptable amount, followed by redistribution to lower-wealth households. The wealthy will have less, but the rest will have more, goes the theory. Inequality reduced.
But as Ludwig von Mises pointed out in Human Action, confiscatory taxes on the wealthy may indeed cause billionaires to be slightly worse off, but the rest of us will be harmed more severely.
“A law that prohibits any individual from accumulating more than ten millions or from making more than one million a year restricts the activities of precisely those entrepreneurs who are most successful in filling the wants of consumers,” he wrote.
Under such confiscatory taxation, Mises continued, “many who are multimillionaires today would live in more modest circumstances. But all those new branches of industry which supply the masses with articles unheard of before would operate, if at all, on a much smaller scale, and their products would be beyond the reach of the common man.”
Why would this be the case? According to Mises, “The greater part of that portion of the higher incomes which is taxed away would have been used for the accumulation of additional capital.”
Greater productivity is made possible only through a greater investment of capital per capita, so when the accumulation of capital is stunted by confiscatory taxes, the amount of goods and services being brought to the market is smaller than it could otherwise be. As goods become more scarce, they become out of reach for average and lower-income households.
Common household items we take for granted, like air conditioning, internet connection, computers, and smartphones would remain luxury goods accessible only to the already rich.
And plans like Sanders’s would not only fail to improve the living standards of the common man, Mises warned; they would further shift power away from the citizens and into the hands of the government.
“Here again the issue is who should be supreme, the consumers or the government? In the unhampered market the behavior of consumers, their buying or abstention from buying, ultimately determines each individual’s income and wealth. Should one vest in the government the power to overrule the consumers’ choices?” Mises asked.
Such intervention into the functioning of the market economy, Mises added, would make society’s allocation of resources less efficient. “He who serves the public best, makes the highest profits. In fighting profits governments deliberately sabotage the operation of the market economy,” he wrote.
A less efficient allocation of resources makes us all worse off, a result disproportionately harmful to the poor whom Sanders and company claim to be championing.
Finally, Mises points out that confiscatory taxation on wealth serves to protect the already wealthy entrepreneurs from competition.
“It is true,” Mises concedes, “the income tax prevents them [the already wealthy], too, from accumulating new capital. But what is more important for them is that it prevents the dangerous newcomer from accumulating any capital.”
In that regard, steep wealth taxes shield incumbent firms from competition, which stymies the dynamic aspect of a market economy. “In this sense progressive taxation checks economic progress and makes for rigidity,” Mises concluded. “While under unhampered capitalism the ownership of capital is a liability forcing the owner to serve the consumers, modern methods of taxation transform it into a privilege.”
The desire by some to impose confiscatory taxes on the wealthy is driven largely by an envy that blinds them to the fact that such taxes would end up hurting the common man much more than the billionaires. Moreover, the taxes could serve to protect the already wealthy from competition and hamper economic progress.
It may be emotionally satisfying for many to favor sticking it to billionaires, but reason informs us that in so doing it is the poor who would end up paying the steepest price.
