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Matthew LauAccording to many, confiscatory taxes should be levied against the wealthiest members of society until billionaires are taxed out of existence.

Just ask devotees of U.S. Democratic Party luminaries Bernie Sanders and Elizabeth Warren, their ideological counterparts in left-wing circles in Canada, and even 62 percent of the audience at a recent TVO debate hosted at the University of Toronto.

The thinking – or lack of it – behind this idea is that massive wealth redistribution is necessary because the rich have accumulated their wealth on the backs of the middle-class and the poor.

Moreover, according to those who imagine themselves fit to determine the allocation of the national wealth, since billionaires have more money than they need or deserve, it’s only fair to take it away.

But the idea that the acquisition of riches by some is responsible for the poverty of others, at least in the context of a capitalist economy, is nonsense.

In his 2014 book Why We Bite the Invisible Hand: The Psychology of Anti-Capitalism, Peter Foster provided a tremendous response to the anti-billionaire crowd.

“Would the world be a better place,” asked Foster, “if Bill Gates – and all the other billionaire entrepreneurs – had never been born? In fact, what the wealthy in a capitalist society are ‘guilty’ of is not taking too much,” wrote Foster, “but creating too much.”

If we want to accuse Gates of taking more than his fair share of wealth, Foster contended, we might also want to accuse the greatest musicians, like Ludwig van Beethoven or the Beatles, of taking more than their fair share of musical fame. However, like today’s billionaires, Beethoven and the Beatles were surely not guilty of taking too much, but rather they created very much.

Just as the social benefits of the music created by Beethoven and the Beatles were enjoyed by society at large rather than just the musicians , so too are the vast majority of the economic benefits associated with the creation of fortunes enjoyed by ordinary members of society rather than the billionaires themselves.

A study in 2004 by William Nordhaus (who won the Nobel Prize in economics in 2018 for his work on climate change economics) examined technological advances over a period of more than 50 years in the American non-farm business economy. He found that only about 2.2 percent of the total benefits of innovations were enjoyed by the innovators themselves. The vast majority of the benefits, Nordhaus reported, were enjoyed by the consumers.

Just as we wouldn’t think of levying punitive taxes against the most popular musicians, since this would discourage them from creating more music, we shouldn’t be in favour of levying confiscatory taxes against billionaires, since this would discourage them from creating more wealth.

Indeed, if some members of society, by earning billions of dollars, have demonstrated a remarkable ability to produce economic benefits – almost all of which, as Nordhaus’s research suggested, is enjoyed by the general public – then surely the way to enrich society is to encourage the billionaires to produce even more.

Imposing confiscatory taxes on the most economically successful members of society is not only an unfortunate display of ingratitude for the economic benefits they’ve created for the rest of us, it’s also greatly counterproductive.

Matthew Lau is a research associate with the Frontier Centre for Public Policy.

Matthew is a Troy Media contributor. Why aren’t you?

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