Should there be a personal income wealth cap of $100 million in the US?
- On January 7, 2021, entrepreneur Elon Musk became the world’s richest man, with a net worth of about $191 billion. He is closely followed by Amazon.com’s Jeff Bezos and Microsoft’s Bill Gates.
- Billions are donated annually from many of the world’s top earners (13 coming from the tech industry).
- 1913 is the year the US enshrined income tax law via the 16th Amendment.
- The U.S. federal tax system is progressive, which means the tax rate varies by the percentage of income earned; larger taxes are applied to higher-income earners, lower taxes to lower-income earners. Some federal taxes are regressive, applying more to lower-income households than higher-income households.
While it may be upsetting to hear that in 2018, Jeff Bezos (net worth of $110B) made more in 10 seconds than half of Amazon’s employees made in a year, the fact is that nearly all his earnings were due to an increase in the value of his Amazon stock and other assets. Bezos’ annual salary is only $81,840, and many other super-wealthy individuals take little or no pay. Their net worth comes from assets and investments, not wages. Not much has changed since then.
No matter how ridiculous his net worth gets, the fact is that Bezos earned that money. All of his hard work and the risks involved in starting this company and expanding to several new areas to increase profits are what made Amazon what it is today – a company with several substantial subsidiaries that employed roughly 798,000 globally in 2019. If the U.S. established a wealth cap, perhaps the next genius with a revolutionary technological idea for an enterprise decides to move to another country to develop his business, removing potential jobs and money from the U.S. economy.
One of the main problems with establishing a wealth cap is that it would not achieve the desired result. According to Robert Kiyosaki, “The rich don’t pay taxes.” Despite paying into the federal progressive tax system levied on high-earning households, anyone rich enough to be affected by a wealth-cap law would be smart enough to find ways around it, either through the use of debt, charitable contributions, or existing tax loopholes. Perhaps, a more effective strategy would be closing these loopholes.
Although generally seen as counter to the virtues of capitalism, the excessive gap between the ultra-rich and the middle class and poor demands a new perspective on wealth caps. Most arguments for the absence of wealth caps revolve around the rich being economic drivers for the economy, creating jobs, and spurring investment. Demand for goods and services is what creates jobs and growth, which requires a strong middle class and a more even distribution of personal wealth. Additionally, excess individual wealth is mainly locked into non-liquid assets, which have little impact on the primary economy. Income growth in the USA historically has benefited the rich disproportionately, and tax loopholes favor the rich overwhelmingly.
A reasonable wealth cap, where excess wealth is forfeited to the tax authorities or obligatory investment in government bonds, would have a huge impact on the economy. This would shift tax obligations away from the masses of low and middle-class earners, who could then spend and invest more into the economy by creating demand for goods, services, and jobs, which is the true engine for economic growth. Consumer demand - the overarching driver for the economy - is created by multitudes of individuals buying goods and services, not by ultra-rich individuals.
Most, who oppose a wealth cap, do so out of a belief that free-reign capitalism creates unlimited opportunity. However, the ugly truth is that this is only true for the top 1% of people who own 40% of the wealth in the U.S.
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