No, the wealthy cannot finance socialism.
The posts are a staple of liberal social media: Attacking the greedy billionaire who could “easily” give everyone $1 million.
“Jeff Bezos could give every single American $3 million and he’d still have $188.8 billion.” “Imagine if @JeffBezos decided to give $1,000,000 to each of those 33 million out of work. It’s pocket change It is not just random social-media postings. In March, MSNBC’s Brian Williams went on the air and endorsed a tweet that stated: “Bloomberg spent $500 million on ads. U.S. Population, 327 million . . . He could have given each American $1 million.” His guest, New York Times editorial board member Mara Gay, concurred that “It’s an incredible way of putting it. It’s true. It’s disturbing.”
It is not true. Instead it is a spectacular failure of arithmetic. Michael Bloomberg’s $500 million in ad purchases could have otherwise given each American $1.52 — not $1 million. And dividing Jeff Bezos’s $200 billion in wealth equally among 330 million Americans would provide $600 each, not $1 million or $3 million.
Additionally, 260,000 people “liked” a tweet condemning how “Jeff Bezos is about to become the world’s first trillionaire” (he has $800 billion to go).
It is tempting to dismiss these claims as random, innocent mathematical errors. In reality, they are central to the growing “Democratic Socialist” worldview, which is increasingly united around the belief that seizing the wealth of Jeff Bezos and other billionaires can finance the future they want. This belief explains the far Left’s non-stop fixation with billionaire wealth (such as the widely circulated but false claim that billionaires have added $584 billion in wealth since the pandemic began). In particular, the Left is obsessed with the world’s richest man (“Jeff Bezos has decided he will not end world hunger today” recently received 500,000 Twitter likes). Just last week, protesters built a guillotine in front of Bezos’s home.
What is remarkable is that the unifying theory of this entire movement can be disproved with third-grade arithmetic. Billionaire wealth cannot fund socialism.
Let’s first add up the spending wish list. Washington faces a staggering baseline budget deficit of $16.3 trillion between 2020 and 2030 (nearly doubling the national debt). And yet the additional ten-year spending initiatives totaled $97 trillion for Bernie Sanders during his presidential campaign, approximately $40 trillion for Elizabeth Warren and Kamala Harris during theirs, $11 trillion for Joe Biden, and an estimated $50 trillion to $100 trillion for Alexandria Ocasio-Cortez’s Green New Deal.
Are these politicians also promising to double or triple middle-class tax rates? Don’t be ridiculous. Their speeches relentlessly focus on looting “the billionayas” (in Bernie Sanders’s voice).
Yet America’s 800 billionaires own a combined $3.4 trillion in wealth. Seizing their every penny could provide a one-time payment of $10,000 per person, or fund Medicare for All for a little over one year. That’s it. And say goodbye to your 401(k), because nearly all revenue would come from a mass liquidation of stock investments (billionaires do not store their wealth in savings accounts or swimming pools of cash). Also, as the market collapses, so would stock sale prices, and thus the amount of revenue to seize from these sellers.
Let’s stay in socialist fantasyland and also assume a 100 percent income tax rate over $1 million, with no tax deductions. IRS data suggests that would theoretically raise $11 trillion over the decade (or $3,000 per person annually). In reality, millionaires would quickly either stop earning or move their income abroad, drastically reducing the tax revenue.
In sum, seizing every dollar of billionaire wealth and every dollar of income over $1 million would not even balance the long-term budget, much less finance socialism.
We can next examine the actual far-left tax proposals. Sanders’s proposed 8 percent wealth tax — which far exceeds the typical 1 or 2 percent rate in the remaining countries that have not abandoned this tax — would raise $2.3 trillionover the decade, according to the nonpartisan Tax Policy Center. His other proposals would raise perhaps $1 trillion to $2 trillion from the wealthiest families.
On income taxes, Alexandria Ocasio-Cortez proposes reinstating a 70 percent marginal tax rate on income earned over $10 million. This would raise only $200 billion over the decade because wages are not a large part of billionaire income.
On this topic of income taxes, many on the far left pine for the 91 percent top-tier income tax rates under President Eisenhower or the 70 percent maximum tax rates through the 1970s. In reality, these policies raised very little tax revenue because high-income thresholds and tax exclusions shielded nearly all taxpayers from these rates. Only eight taxpayers paid the 91 percent rate in 1960, and the richest 1 percent of earners paid lower effective income-tax rates in the 1950s than today. Overall, today’s (pre-pandemic) 8.1 percent of GDP in federal income-tax revenues exceeds that of the 1950s (7.2 percent), 1960s (7.6 percent), and 1970s (7.9 percent). Those earlier decades were no tax-the-rich paradise.
The uselessness of such high tax rates explains why no country in the OECDhas a 70 percent tax bracket. Indeed, America’s top combined income and payroll tax rate nearly matches that of England, Germany, and Norway, and is only ten points below that of France. Europe finances its generous welfare states through steep value-added taxes that hit the entire population.
Corporate taxes are also a common liberal target. Joe Biden’s $2.1 trillion in corporate tax increases would more than reverse the $330 billion in corporate tax relief included in the 2017 tax cuts (the cost of which was further reduced by $385 billion of “economic growth revenues” that was estimated to offset some of the total $1.5 trillion tax cut but was likely driven by these corporate provisions). The Biden corporate taxes could finance only a small fraction of his $11 trillion in new spending. Especially if these taxes cost jobs and drove income overseas.
If we add it all up, imposing the world’s highest wealth taxes, the OECD’s highest income taxes, and increasing corporate taxation to the extent that Biden is proposing would raise approximately $6 trillion over the decade, and that’s under the rosiest scenario, where there are no negative economic effects. This would not even close half of the baseline budget deficit projected over the next decade, much less finance a socialist spending spree.
Again, this is not a matter of philosophy or competing economic theories. It is basic arithmetic.
The issue is scale. Of course it can be argued that the rich should pay more in taxes to finance new spending or deficit reduction. Yet many of those making such arguments appear to make no distinction between programs with annual costs of $30 billion or $3 trillion. Many leftists claim that if America can afford the 2017 tax cuts (of 3 percent), it can also afford their spending hikes (of between 65 and 160 percent). When Alexandria Ocasio-Cortez told CNN that any nation that can afford recent wars ($100 billion annually) can also afford Medicare for All ($3 trillion annually), the video received 170,000 Twitter likes.
To be sure few political movements are filled with policy wonks. Today’s GOP is united around President Trump and his overall blustery, own-the-libs approach, rather than a specific policy proposal. But when an entire movement forms around the belief that taxing the rich is the answer, it helps if someone — anyone — can take out a calculator and check if the math adds up.
Instead, even the leaders of the far Left continue to display mathematical illiteracy.
Bernie Sanders recently pointed to the richest four Americans being worth $512 billion as proof that “It’s time to tax the billionaire class and expand Medicare to all.” Ten seconds of math would show that seizing all of these individuals’ wealth would finance just two months of Medicare for All’s $3 trillion annual cost. Who funds the huge tab thereafter?
Former labor secretary and current Cal-Berkeley professor Robert Reich — whose Twitter feed also exhibits an unhealthy obsession with Jeff Bezos — recently complained of being “sick and tired of hearing that we don’t know how we’ll pay for Medicare for All. Here’s how . . .” He then offered to pay that $32 trillion cost over the decade with three proposals (repealing the 2017 tax cuts, enacting a wealth tax, and cutting defense spending) that would raise just $4 trillion over the decade — leaving him $28 trillion short. His embarrassing self-own nonetheless received more than 40,000 fawning Twitter likes from similarly math-challenged fans.
Taxing the rich is not the only source of false savings to fund a far-left fantasyland. The contribution that could be made by defense savings is also highly exaggerated.
The defense budget has fallen from 4.6 percent of GDP a decade ago to just 3.2 percent today — just slightly above the post–World War II trough of 2.9 percentof GDP that was spent from 1999 to 2001. Yet Robert Reich — again, a former cabinet member — writes that the “percentage of tax dollars spent on the military: 54%” (its actually 15 percent and declining).
Not to be outdone, Alexandria Ocasio-Cortez asserted that much of the $32 trillion Medicare for All price tag could be funded simply by eliminating $21 trillion in wasteful defense spending (which would be 3,500 percent of the Pentagon’s annual budget). In reality, that preposterous figure exceeds all defense spending in American history since 1776.
Just a few days ago, Massachusetts Senator Ed Markey claimed that cutting the $8 trillion defense budget could fully finance both the $30 trillion cost of Medicare for All and the (at least) $50 trillion cost of his new Green New Deal proposal (all are ten-year figures).
It is certainly distressing to see former cabinet secretaries and current influential members of Congress fail to display even a passing familiarity with basic federal taxes and spending.
Yet, ultimately, these lawmakers are bluffing. Bernie Sanders’s Medicare for All legislation includes no taxes at all, because no $32 trillion tax proposal exists (his website lists a menu of $16 trillion in mostly middle-class and business taxes). Similarly, when Elizabeth Warren claimed she could finance Medicare for All by taxing the rich, her proposal ultimately relied heavily on universal business assessments while still coming in at least $15 trillion short. Vermont in 2011 enacted a law mandating the creation of single-payer health care but repealedthe law when it could not design a tax large enough to finance it. Alexandria Ocasio-Cortez’s and Ed Markey’s Green New Deal has never made the leap from a vague resolution to a specific bill, in part because no taxes could possibly fund that stratospheric cost.
In short, free-lunch socialism is a mirage. Europe finances big government with broad-based payroll and value-added taxes, and so would the U.S. The idea that taxing 800 rich people can finance trillions of dollars in permanent new benefits for 330 million people is laughably absurd. Perhaps Washington should instead finance a smaller program to distribute calculators to voters — and politicians.
This piece originally appeared at National Review Online.
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Brian M. Riedl is a senior fellow at the Manhattan Institute and author of the recent issue brief, Coronavirus Budget Projections: Escalating Deficits and Debt. Follow him on Twitter here.
This piece originally appeared in National Review Online