Taxing Jeff Bezos more because he can afford to go to space won’t solve all our problems
For the average person, Jeff Bezos using his money to go to space was probably a non-event. However, for some politicians, this signifies a policy failure that needs correcting.
Business Insider reported, for instance, that
Sen. Elizabeth Warren tweeted Sunday about Jeff Bezos’ recent spaceflight, saying that if he could afford to go to space, he could afford to pay more in taxes.
“The richest guy on Earth can launch himself into space while over half the country lives paycheck to paycheck, nearly 43 million are saddled with student debt, and child care costs force millions out of work,” Warren tweeted. “He can afford to pitch in so everyone else gets a chance.”
Elizabeth Warren is not the only person to have this type of reaction. Numerous other groups and individuals, including Bernie Sanders, also expressed similar sentiments, calling for higher taxes on the rich.
This, however, is a problematic reaction for several reasons.
Wealth does not equal income
According to ProPublica, Jeff Bezos’s wealth grew by $99 billion between 2014 and 2018. However, he only paid $973 million in federal income tax, an effective tax rate of 0.98 percent. This, for some reason, is an indication that the rich should pay high taxes.
Wealth does not equal income, however.
Generally, the U.S. government does not levy taxes on wealth. Presenting taxes paid as a percent of wealth is, therefore, not only inaccurate but presents a misleading picture of how the tax system operates. When compared with income, the rich generally pay higher taxes than low-income individuals.
Not to mention, wealth taxes are complex to administer. Financial assets such as stocks are volatile and can move up and down. Levying taxes on such moving targets would not only eat up administrative resources but also likely present an unreliable source of revenue.
In areas where they have been tried, evidence shows that wealth taxes fail to bring in estimated revenues. “Maryland created a special ‘tax on the rich” that legislators said would bring in $106 million. Instead, the state lost $257 million,” according to a 2012 Forbes piece. Countries in Europe have abandoned such wealth taxes after they became such a flop.
Taxing billionaires more wouldn’t solve society’s problems
An Ultra-Millionaire Tax on Jeff Bezos, for example, would mean that he would have to liquidate stocks and sell some assets. But what would Amazon be worth if its founder had to do this every year? Probably not much.
Generally, most billionaires have made their wealth by providing goods and services that people value and pay for. So a wealth tax would most likely be a tax on innovation, effectively discouraging investment and risk-taking. This would consequently slow economic growth.
To the extent that such taxes work and possibly expand government coffers, even the rosiest estimates show that tax collections would not be enough to address existing social issues.
A study by the Manhattan Institute found, for instance, that under a realistic scenario, extra revenue from higher taxes on the rich would bring $3.9 trillion in a decade. Under a rosy scenario, revenues would total $9.3 trillion, less than $1 trillion extra a year.
To put that in perspective, the federal government spent $6.5 trillion in 2020 and only collected $3.42 trillion in revenue, a deficit of $3.08 trillion. In 2021, the federal government is projected to spend $6.8 trillion while collecting $3.8 trillion, a deficit of $3 trillion. At such projections, an $9.3 trillion would cover deficits for only three years.
Whether billionaires should spend their incomes differently is an entirely philosophical question. Research evidence, however, does not support the idea that taxing the rich would address existing social problems.