When I recently wrote about Bezos’s value creation in the Wall Street Journal, some readers objected that Bezos did not build Amazon by himself. Amazon used the internet. The government helped create the internet. Therefore, his wealth is partly a product of government action. Therefore, the state has a moral claim on much of his fortune.
That is Barack Obama’s “you didn’t build that” argument. True, no one builds anything in isolation, and entrepreneurs use laws, courts, roads, schools, electricity, language, science, and prior inventions.
But the redistributionist conclusion does not follow.
Public inputs are not gifts from the state. They are funded by taxpayers. If government taxes citizens to build roads, courts, or networks, it cannot later treat those services as favors that create a second claim on private achievement. Citizens paid for the input. They do not owe the state their output.
Access is not authorship. The internet made online commerce possible. It did not make Amazon inevitable. The same public inputs were available to millions of people. Every major retailer, investor, and bookstore owner had access to the network. They did not change how we shop. Bezos did.
The logic applies universally. The lawyer did not invent the courts. The doctor did not invent medicine. The writer did not invent language. If public input is dispositive, then private property becomes meaningless.
The argument becomes circular when government monopolizes an input. The state taxes citizens to fund infrastructure, restricts or crowds out private alternatives, and then says citizens’ use of state infrastructure proves their dependence on government. That is not moral reasoning. It is a closed loop.
True public goods may justify taxation under clearly defined rules. They do not justify an ownership claim over every enterprise that uses them.
The public inputs argument takes success for granted but never explains why Bezos succeeded while most did not even try. The economist Israel Kirzner provides the answer: entrepreneurial alertness. A successful entrepreneur notices what others miss, acts before others act, and is rewarded if consumers value the result.
Eric Boehm tweets: (HT Scott Lincicome)
The impulse to demand that executive power get used to solve every single perceived problem is the number one thing eroding American democracy
Phil Magness explains why he isn’t a “neoliberal.”
The Takings Clause of the Fifth Amendment states that the government may not take “private property” without paying “just compensation.”As Richard Epstein and Eduardo Penalver – leading takings scholars with widely divergent views on most political and legal issues – explain in a joint essay on the Takings Clause for the National Constitution Center, “the guarantee of just compensation must apply at the very least to cases in which the government engages in the outright confiscation of property.” Stock is private property, and seizing 50% of the stock value of major firms is a pretty obvious case of confiscation.
And it does not matter that Sanders proposes to take “only” 50% of the stock, rather than 100%. If the government seizes half your house or half of your business, that’s still a taking. Indeed, the Supreme Court has held that seizing a much smaller proportion of a property is a taking, as in the famous case of Loretto v. Teleprompter, where New York City required the owner of a building to give up a small portion of the roof to put a cable box there. The same principle applies here.
Sanders refers to the seizure as a “one-time 50 percent tax.” But that labeling doesn’t matter. It’s still obviously an expropriation of property, and not simply a tax on the income it generates or even a property tax. One of the key elements of property rights is control over its use. Sanders makes clear that seizing control for the government is a major objective of the proposal. There can be situations where the boundary between a tax and a taking is fuzzy. But this proposal is very obviously on the taking side of the line.
If merely labeling an expropriation like this a tax could immunize the government from takings liability, they could use the same trick to expropriate virtually any property without compensation. Thus, they could take over your house by claiming that it’s merely an in-kind tax payable in the form of land-use rights. They could take over any business or charitable organization by claiming that it’s a one-time tax payable by turning over the right to control all the organization’s activities. And so on.
Vance Ginn busts the myth of a permanently poor underclass.
A faddish conjecture among progressives right now goes like this: Rich people’s assets appreciate, giving them unrealized capital gains. If they realized the capital gains by selling the assets, they’d have to pay taxes on the gains, so instead they borrow against the value of their assets during their life. Then, when they die, their heirs get the assets and start over at the value when they receive them, so the gains are never taxed.
It’s a neat theory, but does it actually characterize the behavior of high-net-worth individuals? Edward Fox of the University of Michigan Law School and Zachary Liscow of Yale Law School published research on this question last year.
Basically, the rich have no reason to do “buy, borrow, die” because … they have a lot of money. In addition to their unrealized capital gains, in any given year they have lots of salary, business, interest and dividend income, along with realized capital gains, all of which are already taxed.
Fox and Liscow found that rich people’s annual liquid income is higher than their annual consumption, removing the need to borrow to finance their lifestyles.
An analogy for someone with more typical personal finances makes the folly clear. For most people, the largest source of unrealized gains is the increase in value of their home. Someone could, in theory, take out a home-equity loan and use it to finance their consumption. But this isn’t a genius strategy for tax avoidance. They’d still have to pay income tax on the money they earned from their job and then pay back the loan with interest.
Fox and Liscow found that new borrowing for the top 1 percent of wealth-holders only came out to about 2 percent of their annual economic income, which they define to include increases in unrealized gains. Again, it should not be surprising that the very rich aren’t borrowing a ton of money.
For households in the top 1 percent of wealth, they found that the median amount of economic income subject to the income tax is 56 percent, and the median amount of debt as a percentage of wealth is zero percent.
Adam Omary and Jeffrey Singer make clear that “the Surgeon General’s screen warning is not science.”
