Last week I was lucky enough to accomplish something on my bucket list. This might sound a bit nerdy, but I had an all-day private tour of the April 19, 1775 skirmish in Middlesex County, Massachusetts. Our guides with the National Park Service and various reenactor organizations were phenomenal. Although I have read dozens of accounts of the battle, nothing brings clarity to a battlefield more than walking the turf and understanding the psyche and the motivations of the various combatants. For years, I had a nagging curiosity about the things I didn’t know, but wanted to know about that day. It is a great feeling to have your curiosity assuaged which always leads to new insights.
America is a unique place where early on “liberty” was a well understood and jealously guarded concept. In 1775, the two most liberal and progressive areas of the world were thrust into an 8 year long, brutal civil war. The colonists wanted more “liberty,” and as a result of the sacrifice of a very small number of men, the greatest country in the world was born. What’s more, this country through its industry and ideals improved the lives of hundreds of millions, indeed billions of people around the world. We have lifted the world’s living standards and happiness to unimaginable heights, and we are still doing it. Think of George Bailey and what Bedford Falls would’ve been like had George not been born. The same holds true for the world had America not been born.
What has always struck me about the American Revolution is the devotion and sacrifice of so few that served so many. The tide of battle swung back and forth, and many were apathetic. The populace often adhered to whichever party controlled the countryside. The American armies were small in number, many soldiers were on short enlistments, but there were a few tenacious and industrious souls, who gave it their all and were under arms for the entire 8 years. Truly a handful of men changed the world. These men deserve to be honored, which is why I traveled to Lexington and Concord last week.
The same principle that delivered independence to the colonists exists today in business. It is always the talented and spirited few who lead the many. This isn’t very PC, but an easy 80% of the population is of no more than middling street smarts and abilities. It is always the top 20% that provide the opportunities for the 80%. But for the existence of the smart and industrious, the world would be stuck in a feudal caste system of despair and stagnation. The 80-20 Rule is real and as long as human beings walk this earth, it will always be the 20% leading the 80%. In some instances, it is the 1% leading the 99 to greater wealth, prosperity and happiness. Like the Minutemen of Massachusetts, these men of gumption, tenacity and enterprise should be honored.
This brings me to Joe Biden’s new tax proposals and the constant demagoguery of the Left to punish the rich and successful and demonize the accumulation of capital. The proposed Biden tax legislation, tagged as the Billionaire’s 20% Minimum Tax Bill, is stupid on steroids. It’s stupid because it taxes wealth (unrealized gains) and not income. Thus far, the proposed legislation seems to suggest that if Daddy Warbucks has revenue but no taxable income, he would have to pay 20% of his revenue in taxes. The only way this can be done is through having to liquidate Daddy Dub’s wealth. A simpler example of this policy is if Joe the Dry Cleaner has $100,000 in revenue and $100,000 in expenses, he would have to pay $20,000 in federal taxes despite not having any income. It is equally catastrophic for the billionaire, as he would have to sell his assets at a huge discount in years when he had no net income. Most of the time when a rich guy has many write offs it is because he is spending money (which of course is taxed by those who receive it) to make money in the future. A dry cleaners might have enormous startup expenses opening a new location such that Joe has no net income, but yet Joe’s money is at work, circulating through the economy to offer better goods, service and convenience to the general public. The same principle applies to Daddy Dubs.
Almost all billionaires are super rich because people voluntarily gave them their money for the products and services they delivered to them. Because of Jeff Bezos, I can have groceries delivered to me within 2 hours. If it weren’t for Bill Gates, I wouldn’t have software systems that revolutionized the world. If it weren’t for Jeff Zuckerberg, I would feel a deep emptiness being disconnected to two of my children who live 3,000 miles away.
Who cares if these guys don’t pay any personal income taxes? There is no life on Planet Earth without water. Likewise, there is no economy without capital. Nothing is produced without capital. Nothing can be produced without capital. Capital is good. The US’s policy should be to produce more capital, not to tax it into oblivion. A rich man with $1 billion provides far more societal good than a rapacious government “stealing” money from the productive. The super-rich don’t stick their money in their mattresses, it is at work all the time creating not only new products and industries, but making existing industries more efficient and competitive. Capital mirrors water in another respect, it “flows” to where it is the most efficient. Quite simply, wealth begets wealth. Every penny of government spending detracts from this incredible organic environment where capital flows towards efficiency, pulling the 80% upwards and enriching their lives. If Jeff Bezos wants to stick his money into a trust for his descendants that is never taxed, I wouldn’t care because even inherited wealth provides an abundance of societal benefits that government cannot.
I never like proving the value of a person or an enterprise by the amount of taxes he or it pays. It is a “falsa narratio” as the contributions paid to government are worth much less than the contributions invested in the economy. Nevertheless, if Daddy Dubs pays no personal income tax, that does not mean that his capital is not producing huge windfalls for the taxing authorities that ripple through the economy many times over. But for that billion dollars, there would not be thousands of jobs, the income of which is taxed where employers pay for half of the employees’ Social Security and Medicare. These folks buy food, cars, houses, material goods (activities that generate tax revenue), and through savings, these employees also provide capital that also flows to where it can do the most societal good. Daddy Dub’s billion dollars leads to huge excise taxes paid on products that are directly taxed by the government. Personal property taxes, business taxes, license fees, utility taxes and fees, and a slew of other direct payments to taxing authorities are created by the existence of a billion dollars of capital and the sources of productivity to which it flows.
If Clarence Oddbody showed you what the world would look like without billionaires and their capital, you would realize what a “wonderful life” these people bestow upon us. The creators of capital lift the rest of us up to new heights. Punishing capital formation only makes us poorer.
