Recently I saw someone ask “What could you really do to eliminate billionaires?” After all, most folks aren’t exactly achieving billionaire status via robbing casino vaults or anything: they get there primarily through wealth acquisition due to large ownership of stock in various companies, usually ones that were created or run by their family members. So, how do you limit the number of billionaires?
Tax Corporations
First and foremost, if the primary way people become wealthy is “increase in value of stock”, then the direct answer is “Slow the growth of the stock.” Now, I’m far from claiming that the stock market is rational – thinking of the stock market as anything other than a chaotic entity is probably not in anyone’s best interests – but I do believe that stock increases more when assets increase – and assets are largely about how much profit a company can bring in. If we successfully limit the profit of corporations, the growth of those stocks will slow, and the rate at which billionaires see their hoards of cash grow will also slow.
The first and most obvious way to do that is to simply more effectively tax corporations. Through a variety of tax behaviors, global megacorps have gotten extremely good at limiting their tax burden. Apple, for example, recently repatriated $252B in profits – but only after a change in the GOP tax code which lowered the cost of doing so. Rather than paying $80B in taxes, Apple paid only $40B, thanks to a repatriation tax holiday, and those billions are now additional cash in the bank for Apple, 5% of Apple’s total market cap. The ability to hide profits overseas in this way is something that is limited to major multinational corporations (which have the ability to take advantage of their homes in multiple countries to take advantage of complex international tax schemes), creating an unfair playing field for more local concerns. These effects are felt globally – at one point, Google was let out of a 1.27B back tax bill in France, for example – so this is not just a US problem, and not just a single company: it’s an entire set of tools to avoid these territorial tax systems. Base erosion and profit shifting agreements like the Double Irish Arrangement have let companies stash and shift hundreds of billions in profits, avoiding paying taxes in relevant jurisdictions around the world. Closing these loopholes would help redistribute the profits these companies report and hold largely as cash-in-the-bank to governments which can use those funds to support the broader needs of groups other than shareholders.
Second, corporate tax rates in the US are now simply too low. After the recent tax cuts from the Trump administration, the corporate rate is now only 20% – cutting incoming revenues from corporate tax rates by an average $200B/year. This is another way in which we allow wealth to concentrate – we’re lowering tax rates while corporations are posting all-time record profits. This money is supporting not just cash-on-hand, but massive stock buybacks from corporations, increasing the wealth of large shareholders. There is no limitation on what mega-corps are able to invest: they are not investing in the company, but rather in their own pockets via increased share prices. While the nominal rate of US corporate tax rate was high compared to other nations, our effective tax rate has always been in line with or lower than our peers, and the recent drop is just pushing us even further down that gap. When companies – especially large companies with revenues of billions per year – are doing well, cutting the tax rates offers no significant value to society, while leaving the rich richer and society poorer.
Increased Worker Control
Beyond simply taxing corporations more effectively and at a higher rate, we should also acknowledge that many corporations focus on profits over reinvesting in their employees. The interests of large corporate boards do not align well with the interests of the workers who form the backbone of those companies, but rather, on increasing the returns large shareholders see. This means corporations are not incentivized to treat their workers well: the most profitable short-term moves are typically to simply pay the minimum you can get away with while retaining staff. Overall, we need to increase the level to which mega-corps are responsible to their workers, through a combination of increased worker representation at the highest levels and regulation to provide more worker power and protections.
Senator Warren’s Accountable Capitalism Act (explained here by Vox) is intended to refocus corporations on recognizing “their obligations to employees, customers and the community.” One of the ways in which this would be done would be to require corporations with greater than $1B in revenue to allow their workers to elect 40 percent of the membership of their board of directors. With a voice at the table like this, workers would have the ability to argue for worker-focused investments in corporations: things like higher wages and improved benefits which dip into the massive profits that have been fueling corporate stock growth. This type of representation could also help move companies towards being more responsible in how they interact with the rest of the world, rather than simply the shareholders in the company. Corporate boards like Google’s are largely staffed by billionaires. With at least 8 of the 11 members of the Alphabet board having a net worth of more than a billion dollars, it is clear that the perspective these folks bring to the board is a very different one from the perspective brought by an employee with a total compensation package that doesn’t even number 6 figures. While 40% is not enough to control board decisions, it is enough to form a strong basis for influence on corporate decision-making.
Warren’s proposal is based off a similar notion that exists in countries like Germany, where employee representation in decision-making is also mandated. Over the past 3+ decades, the value of stock relative to the underlying value of the assets of the company has soared in the US and the UK, while it has stayed compariatively flat in Germany.
Graph showing relationship between value of the company relative to value of assets shows UK + US as having a much higher ratio – at around 1-1.2 – than Germany at around .5.
If Warren’s proposal were to bring the US more in line with Germany, this could mean that over time you would see share prices fall by 25 percent. Hard to imagine that the billionares whose investments are primarily in stock of these corporations would sign off on that – but an employee with almost none of their total wealth in stock might be willing to make these trades in order to achieve better behavior from corporations for workers.
In addition to action to change the shape of corporate boards, there is a need to improve regulations to further prevent corporate misbehavior in wages, benefits, and more. At a basic level, issues like the fight for a $15 minimum wage will also cut into corporate profits. With corporations like Wal-mart still choosing not to pay a $15 minimum wage to all its workers, there’s plenty of room to set higher standards via regulation and force the issue.
Direct worker pay is not the only area where corporations have been skimping on employee compensation. Since the 2008 recession, there’s been a drastic increase in the amount of part-time labor positions, with corporations attempting to stay under hourly caps to avoid paying benefits to workers. The direct action here is less clear, but it’s clear that corporations are attempting to game the system in order to leave workers without benefits – forcing them to work multiple jobs in order to make a decent wage, with neither job willing to cover benefits as they remain under the minimum caps for providing those benefits. Targeting corporate policies which encourage part-time work, and increasing the total share of workers who have full employment, is something we should be considering via regulation.
Finally, the moves across the country to remove power from unions has been a huge step backwards for the middle class. Removing the ability for people to collectively organize against massive corporations has resulted in these corporations mistreating workers and led in part to the current stagnation of wages we are seeing. We need to reverse these trends in order to increase worker power, so that we can have workers stand on a more even footing with the corporate operators who generate billions in profits. This means that there needs to be a series of efforts across the board to roll back limitations on unions in so-called “right-to-work” states; there needs to be increased protections for workers deciding to work collectively; and we need to bring back a culture of unions as a way for workers to gain a more equal seat at the table. This item is as much of a social shift as it is a regulatory or legal shift, if not more.
Overall, it’s clear at the moment that corporate governance at most large companies is focused almost entirely on shareholder value. By bringing more workers into the loop on control – from the boardroom to the breakroom – we would trade off corporate profits and growth in the value of corporate shares for improve treatment of employees and investment in the long-term success of those employees. Whether it’s $15/hour minimum wages or health care benefits, organizing in unions at the bottom or organizing on the board at the top, there are plenty of ways that we can seek to refocus large corporations on benefiting the people who work for them. This will directly impact the annual returns of billionaires by slowing stock growth, and redistributing some of that wealth more broadly.
Individual Taxes
The last way that we can affect the growth of billionaires is by directly limiting the growth of their wealth via taxes. There are two main tools that I have seen proposed for this recently: increased marginal rates on income taxes, and a direct tax on wealth.
First, let’s be clear: Regardless of the desired impact on any population, the US is simply collecting too little tax revenue for the size of the government. With government running a massive deficit – at this point, topping $1T/year – we need to bring in more cash. We need to pay for the things this country is spending, and there is no reasonable way to cut more than $1T in programs from government spending, especially at a time when so many in the country are unable to build any wealth. Even if you set aside any desire for more progressive social programs, we aren’t even paying the bills we have today, and we need to fix that: getting into an endless spiral of debt will have long-term consequences that will lead to disaster. $1T is a huge deficit, and we need to get out of that hole.
We should continue to keep taxes on the poor and middle class low. These folks can not bear the burden of additional costs. Wherever possible, we should use targeted changes to individual tax burden towards the “haves”, and not the haves nots.
There has been a proposal to increase marginal tax rates – specifically, to increase the marginal tax rate to 70% on incomes over $10M/year, bringing us back to a level common throughout much of the US’s most prosperous history. This change would generate some increased revenue, though it’s not clear to me that the rates proposed are likely to significantly affect much. Only 3755 Americans earned more than $10M in revenue in 2017, so this change is likely to only bring in an extra $15B/year. This change is more important because of the values it speaks to than because of the revenue generation: it says that if you are a member of the ultra-wealthy .0007%, you are getting more benefit from our overall system, and you need to contribute back to making sure we can all keep this whole thing going.
The reason that this affects so few earners is because at the high end, very little of the money in our economy is paid out as income to high earners; most of their gains come from capital gains, rather than from income directly. This means that they are able to pay taxes on it at a much lower rate – 15% for long-term capital gains, rather than the higher rate. We should end the practice of taxing capital gains differently. By eliminating the special rates for capital gains and dividends, we could bring in an average of $200B/year greater tax revenue over the next 10 years. This would eliminate the existing incentives for wealthy individuals to disguise their income as capital gains, causing more individuals to fall under the higher marginal tax rates described above, and creating a system which doesn’t privilege the ultra wealthy. Our existing capital gains tax loopholes encourage perverse incentives, and introduce tons of complexity into both our tax system and our overall economy. We should simply eliminate this benefit.
Finally, we should simply tax wealth. Warren’s recent proposal is to tax all wealth > $50M/year at 2%, and wealth > $1B/year at an additional 1%. These rates are low – low enough that anyone should be able to exceed these returns on the market. What this will mean is that over time, the wealth of the richest .1% will grow more slowly. Slowing the growth of the wealth of ultra-wealthy individuals is the most direct way to ensure that we have a system which produces fewer billionaires, and slows the growth of those billions. In addition, it is another source of revenue – expected to bring in an average of $300B/year in revenue over the course of 10 years, captured directly from those who are most able to afford it.
A Better System For Us All
Reducing the number of billionaires – or the rate at which their billions grow – should not be about being punitive. Our system has long-rewarded those who accumulate wealth, and those who have followed that playbook do not deserve penalty or punishment simply because they’ve followed the standard playbook that has been in place for decades.
Instead, we need to build incentives for corporations to reinvest in their workers and infrastructure. We need to give workers more power, from the bottom to the top, and support them with regulations to ensure they have a minimum standard of compensation and benefits, while also using regulation to force corporations to be good citizens where they have chosen not to.
We also simply need a higher level of taxes. We need to slow the economy down in order to reinvest in our fundamentals – from infrastructure to social support services – and we can do so by using higher tax rates on the extremely wealthy.We need to stop digging ourselves into a cycle of deeper debt. We need to slow the growth of the immense assets of the haves while the have nots suffer to an extreme extent.
There are probably more things you could do, but these are the things that you could do that would, in the long run, do a lot to limit the growth of the assets of billionaires.
