Wednesday, July 18, 2012

What If the Rich Really Gave Back as Obama Wants?

President Obama tells us that the rich should give back to society. He even knows many wealthy people who want to give back more. (I guess they can’t until their taxes are raised). We learn from him that the rich owe their success not to business acumen and risk taking but to public roads, schools, the courts, food stamps, disability payments, workplace regulation, and other government services. We even owe the first rumblings of the internet to DARPA, unfortunately the research arm of the military-industrial complex. (Or was it Al Gore?).  Obama feels it is only fair that the rich return what the government gave them. What business could survive without access by public road? Fair is fair, after all.

What would happen if we, like France’s socialist state, taxed away seventy five percent of earnings above one and a quarter million and  high-net-worth business executives with  $2.5 million in salary, dividends and rental property pay a marginal rate of 90.5 percent. At such rates, our rich would really be giving back to government what it is due, and perhaps more.  Fair is fair.

With so much “going back,” there is little reason to go forward. The “rich” should just cash in their chips, stop building their businesses or starting new ones, pay their high taxes, and live off their wealth, unless that is taxed away too. After all, the government can “invest” their money in Solyndras,  Volts, and entitlement programs. As Obama claims, government investment has higher returns than private investment.

If Steve Jobs had paid his fair share back to society after he made his first ten million, Apple today would today be a relatively small company worth less than a billion and employing a thousand or so. It would not be the world’s largest company in market cap, it would not employ 60,400 people worldwide, and we would not have the IPads, IPhones, Apps, and other innovative Jobs products, which improve the quality of lives and raise living standards. Apple shareholders would not hold shares worth a half trillion dollars.

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  1. Wouldn't "the rich (increasingly) owe their success public" if public grows due to higher tax and expenditure?

  2. The rich owe their success to business acumen and risk. Let's say that they have gene for business success, as indicated by Buffett. Then, giving their money away with good intention is nice, but not efficient.

    The rich does not succeed without creating profitable jobs. Profitable jobs are the most robust way of reducing poverty.

    It is interesting to note that, in response to the recent philanthropists moves (Gates-Buffett) to increase the number of philanthropists, the wealthiest men of the Central and South America seems to indicate that their entrepreneurial activities will create more jobs and opportunities for the poor than engaging in philanthropy. In the long-run whoever spends money more efficiently will have more impact.

  3. While I agree with parts of your article-- and I stress, PARTS, you "forgot" to mention that SpaceX was initially funded by NASA with $400-500 Million... Umm, sorry dude, but NASA is government funding.

    Furthermore, it now has a $1.6 Billion NASA contract, as reported from a very good, ahem, source:

    NASA is still government right?

    Lastly, Tesla used a $495 million dollar "Advanced Technology Vehicle Manufacturing loan" from... you guessed it, The US Government, to hit the market faster:

    I doubt you will respond to this comment, but the fact it you can't have it both ways. You say that SpaceX wouldn't be around if Elon Musk gave away his fortune? Of course that is true. But, it is also try that SpaceX wouldn't exist without government help and contracts. Elon Musk is an amazing guy, a spectacular businessman, and generally a libertarian. But even HE can agree that the government can do some pretty great things for businesses. Why do you disagree?

    Why do you use the "Solyndras and entitlement programs" example for government help? Why not use the SpaceX and Tesla example!!

    What makes me angry, is that you have published this article, and will most likely never correct your mistake. It is a shame.


  4. Andrew,

    You assume no use for the funds (tax money), if the government had not loaned it to your (the government's) selected entrepreneur. A proper counterfactual--how things could have turned out differently if only...---is needed if you want to argue that the government is useful in selecting who to succeed in the economy. You are assuming that the government employees have the expertise---and lack political interest---in finding what is not funded properly, and can choose the most efficient business plans for developing autos, space vehicles,.... Wouldn't you agree that the government employees choose their jobs because of some sort of self-selection; i.e., they lacked comparative advantage in business, where, different sets of risks/rewards and specializations (than those found in the government's institutions) are needed?