Billionaires are wailing that wealth tax proposals by Elizabeth Warren and Bernie Sanders are attacks on free-market capitalism.
Warren “vilifies successful people”, says Jamie Dimon, chief executive of JPMorgan Chase.
Rubbish. There are basically only five ways to accumulate a billion dollars, and none of them has to do with being successful in a genuinely free market.
The first way is to exploit a monopoly.
Jamie Dimon is worth $1.6bn. That’s not because he succeeded under free-market capitalism. In 2008, the government bailed out JP Morgan and four other giant Wall Street banks because it considered them “too big to fail”.
That bailout is a hidden insurance policy, still in effect, with an estimated value to the big banks of $83bn a year. If JP Morgan weren’t so big and was therefore allowed to fail, Dimon would be worth far less than $1.6bn.
What about America’s much-vaulted entrepreneurs, such as Jeff Bezos?
You might say the $110bn man deserves this because he founded and built Amazon. But Amazon is a monopolist with nearly 50% of all e-commerce retail sales in America, and e-commerce is one of the biggest sectors of retail sales. In addition, Amazon’s business is protected by a slew of patents granted by the US government.
If the government enforced anti-monopoly laws, and didn’t grant Amazon such broad patents, Bezos would be worth far less.
A second way to make a billion is to get insider information unavailable to other investors.
Hedge-fund maven Steven A Cohen ($12.8bn) headed up a firm in which, according to a criminal complaint filed by the justice department, insider trading was “substantial, pervasive, and on a scale without known precedent in the hedge fund industry”. Nine of Cohen’s present or former employees pleaded guilty or were convicted. Cohen got off with a fine and changed the name of his firm.
Insider trading is endemic in C-suites, too. SEC researchers have found that corporate executives are twice as likely to sell their stock on the days following their own stock buyback announcements as they are in the days leading up to the announcements.
If government cracked down on insider-trading, hedge-funders and top executives wouldn’t rake in nearly as much.
A third way to make a billion is to buy off politicians.
The Trump tax cut is estimated to save Charles and the late David Koch and their Koch Industries an estimated $1bn to $1.4bn a year, not counting their tax savings on profits stored offshore and a shrunken estate tax. The Kochs and their affiliated groups spent some $20m lobbying for the Trump tax cut, including political donations. Not a bad return on investment.
If we had tough anti-corruption laws preventing political payoffs, the Kochs and other high-rollers wouldn’t get the special tax breaks and other subsidies that have ballooned their fortunes.
The fourth way to make a billion is to extort big investors.
Adam Neumann persuaded JP Morgan, SoftBank and other investors to sink hundreds of millions into WeWork, an office-sharing startup. He used some of the money to buy buildings he leased back to WeWork and to enjoy a lifestyle that included a $60m private jet. WeWork never made a nickel of profit.
A few months ago, after Neumann was forced to disclose his personal conflicts of interest, WeWork’s initial public offering fell apart and the company’s estimated value plummeted. To salvage what they could, investors paid Neumann more than $1bn to exit the board and give up his voting rights. Most other WeWork employees were left holding near-worthless stock options. Thousands were set to be laid off.
If we had tougher anti-fraud laws, Neumann and others like him wouldn’t be billionaires.
The fifth way to be a billionaire is to get the money from rich parents or relatives.
About 60% of all the wealth in America today is inherited, according to estimates by economist Thomas Piketty and his colleagues. That’s because, under US tax law – which is itself largely a product of lobbying by the wealthy – the capital gains of one generation are wiped out when those assets are transferred to the next, and the estate tax is so tiny that fewer than 0.2% of estates were subject to it last year.
If unearned income were treated the same as earned income under the tax code, America’s non-working rich wouldn’t be billionaires. And if capital gains weren’t eliminated at death, their heirs wouldn’t be, either.
Capitalism doesn’t work well with monopolies, insider-trading, political payoffs, fraud and large amounts of inherited wealth. Billionaires who don’t like Sanders and Warren’s wealth tax plans should at least support reforms that end these anti-capitalist advantages.
Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. He is also a columnist for Guardian US
