No man is an island, entire of itself; every man is a piece of a continent, a part of the main. — Devotions Upon Emergent Occasions, John Donne, 1624
In the last few years, in particular, it seems that there has been increased discussions about the topic of Billionaires. Specifically, discussion about whether or not there should be any. Many have weighed in on the matter, from actual Billionaires like Bill Gates and Mark Cuban, to Anarchic Socialists who dream of a world without money.
In the middle, there seems to be an growing number of people who want to see a return to pre-1980s Top Federal Tax Rates, as Representative Alexandria Ocasio-Cortez suggested on CNN back in January and Senator Elizabeth Warren's far more ambitious 2% tax on all fortunes over $50M, to the various "supply-side" economics proposals that have been floated since the 1970s that nearly destroyed the State of Kansas a few short years ago.
The center- and right-leaning objections to these proposals have been simple: "People worked for that wealth, and they shouldn't be denied it." There is some truth to that position: People did work for that money, and often there was a significant risk that allowed them to earn it. However, this argument simply ignores several important details.
Let's take Bill Gates, and his story, as an example, though it's worth noting that the core points here are basically true of every Billionaire.
First, Gates didn't build Microsoft (the largest source of his fortune) alone. Excluding the Nokia Acquisition in 2014, by the time Gates largely resigned from Microsoft that year, Microsoft had around 100,000 employees. Given the natural retirement and the general churn of employees between jobs in tech these days, it's probably a conservative estimate to say that Microsoft has had well over a million employees between it's founding in 1975 and Gates departure in 2014. Yet only 3 people became Billionaires off of Microsoft (Gates, Allen, Ballmer).
Yes, Microsoft has produced tens of thousands of Millionaires. 12,000 by 2005, but that number is likely quite a bit higher by now, though only that pre-2015 number is likely to include many who earned more than $10M, often largely due to pre-IPO stock grants and Microsoft's strong market performance over the decades.
Did Bill Gates warrant more pay than the average Microsoft employee? Sure; he had more responsibility and had taken the risk of founding the company. But he didn't just get more, he got orders of magnitude more. Three to five more orders of magnitude.
Second, we talk about Billionaires like they came from nothing. Bill Gates's father was a prominent Seattle Lawyer, his mother served on the boards of several banks. He attended a private, very expensive private school. He was at Harvard when he dropped out to found Microsoft. He grew up in substantial privilege, and he could afford to take the risk on a company like Microsoft in 1975 because if it failed, he knew he wasn't going to starve. Hell, Jeff Bezos of Amazon got his parents to put up $250,000 in initial funding, and it's never been intimated that he was seriously risking his parent's future in taking that money.
Knowing you have an out if things go really badly, even if you tell yourself you'd never ask your parents for more money, sits there in the back of your head, it allows you to take risks you might not otherwise, because there is an out.
So, I do understand why there is some balking at a high tax rate for earnings over $10,000,000 a year. Even successful entrepreneurs will typically see those earnings hit in a single big event (company sale, IPO, etc.) and as a result company sales will be a lot less lucrative. I mean, it's still at least a $10M payday, but we're still talking about a massive change in the potential payouts for entrepreneurs. Though anyone who wouldn't found a company because they would only make ~$10M is frankly, kind of an asshole.
This would be a huge shift in the way America thinks about wealth and the role wealth has in a greater society.
We need to be rethinking this though.
I have worked for Google for 6 years. Between base salary, stock, bonuses, and other benefits, I earn somewhere north of $300,000 a year. Somewhat to my surprise, this actually puts me a bit above the median salary at Google. It also puts me any my wife in the 97%+ of wage earners in the US. However, the distance economically from where we are now, from where we were back when we when I was civil servant making around 1/5 of I make now, is far, far less than the earnings of the super rich.
Even Sundar Pichai, Google's CEO, while his base salary is only $650,000 (though that doesn't include his $1.2M security budget), he's been awarded literally hundreds of millions of dollars in stock over the last few years. So much so that he's actually started turning down newer stock grants.
The result of all of this has been the intimation that a large number of entrepreneurs will leave the US if these things become policy. Maybe that's true. However, the things that these programs could pay for, like Medicare For All, also stands to remove impediments for a lot of people to start their own businesses. Plenty of people have medical problems that require fairly high maintenance costs, enough that having their health insurance tied to their employment makes starting a business a massive risk.
Does the likelihood that Medicare for All may free a ton of people to start businesses offset the loss of a relatively few businesses that may grow quite large? Probably not directly. But it's worth noting that tax laws are changing internationally to make it a lot harder for companies to move around their earnings in order to avoid taxes, as much of Tech has done with Ireland over the years.
However, at the end of the day, the numbers that have been thrown about as the targets for these higher tax rates are high enough that they will never impact 99.9% of the population. I also don't believe that many entrepreneurs would choose not to start a business because they'd "only" stand to earn around $10M.
These proposals don't seek to deny people rewards for success. For taking risks. They simply seek to acknowledge the fact that we live in a society, that we do not succeed or fail purely on our own, but that there are an enormous number of factors involved in every success. If people are really intent on preventing this wealth from being taken by the government in taxes, maybe they'll start paying better wages, so we might finally see real wages increase again for the first time since before I was born.