If Wealth Is Justified, so Is a Wealth Tax

Katharina Pistor of Columbia Law School in this Proj Synd piece:

Not surprisingly, American billionaires have dismissed recent wealth-tax proposals as an affront to the entrepreneurial spirit to which they attribute their massive wealth. But the ultra-rich never would have their great wealth without legal subsidies from the state and reliable enforcement by the courts.

….

The private empires over which today’s billionaires preside are organized as legally chartered corporations, which makes them creatures of the law, not of nature. The corporate form shields the personal wealth of the founders and other shareholders from the corporation’s creditors. It also facilitates the diversification of risk within a company, by allowing discrete pools of assets to be created, each with its own set of creditors who are barred from making claims on another asset pool, even though the parent company’s management controls all of them.

Further, the company’s own shares can be used as currency when acquiring other companies. When Facebook bought WhatsApp, it covered $12 billion of the $16 billion purchase price with its own shares, paying only $4 billion in cash. And, as with Facebook, corporate law can be used to cement control by founders and their affiliates through dual-class share structures that grant them more votes than everyone else. As such, they need not fear elections or takeovers of any kind.

Finally, companies whose assets take the form of intellectual property (IP) and other intangibles tend to rely even more on the helping hand of the law. As of 2018, 84% of the market capitalization of the S&P 500 was held in such intangible assets. It takes a legal intervention to turn ideas, skills, and knowhow – which are free to be shared by anybody – into exclusive property rights that are enforced by the full power of the state. And in recent years, Microsoft and other US tech companies have boosted their earning power significantly by promoting US-style IP rules around the world through the World Trade Organization’s body for Trade-Related Aspects of Intellectual Property Rights (TRIPS).

To be sure, there are good reasons for states to adopt laws that empower private agents to reap the rewards of organizing businesses and developing new products and services. But let’s call a spade a spade and a (legal) subsidy a subsidy. While Bezos, Bloomberg, Gates, and Zuckerberg may well be savvy entrepreneurs, they also have benefited on a massive scale from the helping hand of legislatures and courts around the world. This hand is more contingent than the invisible one immortalized by Adam Smith, because its vitality depends on a widely shared belief in the rule of law. The erosion of that belief, not a tax, poses the greatest threat to billionaires’ wealth.

Humanity is all about double standards…

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