The Cheat Sheet

The Cheat Sheet: Why billionaires face an existential crisis today

Venky Vembu | Updated on October 24, 2019

Under Bernie Sanders, billionaires would be taxed at 97.5 per cent. But Indians know that soak-the-rich policies don’t work

But billionaires live the Good Life, right?

They may well, but around the world the tide of resentment is turning against uber-rich moneybags.

How so?

Well, take the political rhetoric in the US, home to more billionaires than any other country. Senator Bernie Sanders is running for the Democratic Party nomination in the 2020 Presidential election — against billionaire Donald Trump — on the plank of obscene levels of income and wealth inequality. In one of his candid policy pronouncements, Bernie said that billionaires “should not exist”.

Surely, that’s just Bernie being an old, crabby uncle?

You’d think. But his campaign platform is drawing huge support, primarily centred around this soak-the-rich theme. Even Senator Elizabeth Warren, who is in the race for the Democratic Party nomination, has a similar campaign platform. Arguably the worst nightmare for billionaires would be a Bernie-Warren ticket.

Perhaps all this is just campaign claptrap...

On the contrary, both Bernie and Warren have outlined detailed proposals to, among other things, levy a wealth tax on the accumulated assets of multimillionaires and billionaires. Economists reckon that under Bernie’s tax plan, the 400 richest Americans would, on average, have an effective tax rate of 97.5 per cent on their income and their accumulated wealth. That’s against the 23 per cent tax they currently pay.

What about Warren’s plan?

Her plan is, by comparison, positively benign: billionaires would pay only 62 per cent tax!

What’s come over America?

The upsurge in support for Bernie’s and Warren’s proposals to sock it to the rich can be explained by the breath-taking growth in inequality in the US: Since the early 1980s — when Ronald Reagan lowered taxes on the rich — the 400 richest Americans, who account for just 0.00025 per cent of the population, have seen their share of the national wealth triple. They now own as much of the national wealth as the bottom 60 per cent of the population.

That sounds a bit extreme.

It does. The lament in the media is that such rampant inequality has meant that ‘the American dream’ has become ‘the American nightmare’.

But will such high levels of taxes work?

Back in Indira Gandhi’s time, India has experimented with 97.5 per cent income tax at the peak slab. It only led to the rampant growth of the black economy, and flight of capital. Smart money has a way of sniffing out tax loopholes.

Are US billionaires gagging at these proposals?

You’d be surprised. Billionaires like Warren Buffett and Bill Gates have long made the case for taxing billionaires at higher levels – although they would probably not have envisaged a 97.5 per cent tax rate. And even lower-rung billionaires like Marc Benioff (who co-founded Salesforce) and Ray Dalio (who founded Bridgewater Associates and built it into the world’s largest hedge fund) have spoken up against the in-your-face income and wealth inequality of recent decades.

Ah, so the rich don’t mind coughing up more.

Not everyone. Others, like Facebook founder Mark Zuckerberg, have been whining about it.

Do Indian billionaires have anything to fear?

India has experimented with high taxes, and has seen that it did nothing to end abject poverty. What little prosperity Indians have seen has come with lower taxes and an unleashing of entrepreneurial energy since the 1990s. But if inequality grows worse, and if the rich resort to obscene levels of conspicuous consumption, the ‘dirty unwashed masses’ will surely bring out the pitchforks and channel their inner Bernie.

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Published on October 24, 2019

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