In defence of billionaires

This week, Labour leader Jeremy Corbyn responded to the news that billionaire Amazon chief Jeff Bezos had donated nearly $100 million to help the homeless. Rather than welcoming this act of charity, Corbyn took to Twitter to bash Bezos, arguing that this was a minuscule proportion of his wealth and that he should instead “just pay [his] taxes”.

A rather strange response to such a charitable donation. But disdain for successful entrepreneurs is fast becoming the norm.

Just last week the shadow chancellor, John McDonnell, set out his vision for the economy, singling out billionaires as the problem. He argued that their “obscene” wealth is inherently bad, a stain on society and an indication of an economy “rigged” against the many.

Just as presidential hopeful Elizabeth Warren has stepped up her attack across the Atlantic with proposals for a “wealth tax” on the super-rich, the Labour party has upped the ante too, questioning whether billionaires should even exist.

While attacking the super-rich may be an obvious vote-winner (recent polls show that 64 per cent believe that there should be a 50 per cent tax on income over £124,000 and 56 per cent of voters believe the “rich don’t pay fair tax”), it does not translate to good policy.

Top earners are paying a huge proportion of income tax. The Institute for Fiscal Studies revealed last week that the top 1% of earners in the UK now account for more than a third of all income tax (while 42 per cent of adults pay no income tax at all). Tax receipts from businesses are also at an all-time high which, of course, means more money available for public services.

The real irony, of course, is that the top 1% are paying a greater share of tax now than at any time under the last Labour government. It may not be intuitive, but the evidence shows that hiking taxes can often lead to less revenue for the Treasury.

Take France, which has had a turbulent relationship with its super-rich taxpayers. Having experimented with wealth taxes since the 1980s, as well as a short-lived “super-tax” under socialist president Francois Hollande, attempts to redistribute wealth have backfired, both in terms of the measly revenue they brought in and the damage these taxes did to the wider economy, including the exodus of the country’s wealthiest.

While the flight of thousands of wealthy individuals, including iconic film star Gerard Depardieu, likely helped reduce inequality on paper, that doesn’t mean their departure left France any better off. Indeed, the French economist Eric Pichet has estimated that the wealth tax in place between 1988 and 2017 cost the French economy twice as much as it raised.

There’s good reason to think that Labour’s plan for higher taxes on the rich could result in similar outcomes to France. Just last week, the IFS reported that the party’s proposal to hike tax rates could actually end up costing the economy £1bn.

There is a popular opinion going around, that by expropriating the wealth of the rich for redistribution, we can improve the lives of those at the other end of the pay scale. Many on the economic left seem strangely preoccupied with reducing the wealth of the rich, rather than encouraging the economic growth necessary to improve the lives of the poor.

As the IEA’s Professor Philip Booth points out, reducing the wealth of the richest beyond a certain point won’t lead to a fairer distribution of wealth. Rather, it will destroy it for the benefit of no one, harming the very people the left claims to want to help.

As taxes rise over a certain threshold, people’s behaviour doesn’t stay the same. They work less, save less, and are more likely to seek ways to avoid tax or move to lower-tax economies, taking their tax receipts with them.

It is simply a myth that billionaires sit on their wealth like misers at the expense of the less fortunate. They redistribute that wealth through starting and investing in businesses, as well as using services and consuming. This is before we even consider the philanthropic causes funded by billionaires every day.

Moreover, the UK’s top earners are increasingly self-made. They are no longer the old landed gentry, as their critics would like to paint them. Jim Ratcliffe, CEO of chemical company Ineos, grew up in a council house near Manchester. He is now the richest person in the UK and employs thousands of people.

This is the ultimate rags-to-riches success story. It is an achievement to celebrate and an inspiration for a new generation of entrepreneurs. Yet he is a source of resentment for those so knee-deep in ideology that they can’t see the benefits of living in a society where it is possible to become a billionaire.

And for all the talk of billionaires’ wealth, little lip service is paid to the consumer surplus that those billionaires have generated for millions of people. Think, for instance, of the late Apple CEO Steve Jobs or Ryanair’s Michael O’Leary. Their wealth is not particularly comparable to the unbelievable contributions that they’ve made to the rest of the world.

In the words of a rather famous former prime minister, “[socialists] would rather the poor were poorer, provided the rich were less rich”. It is simply not the case that doing away with the nation’s billionaires would improve the lives of the less well-off. In fact, it is much more likely that a crackdown on wealth and earnings would lead to a diminished social safety net and a less prosperous society as a whole.

Written by Emily Carver

Emily Carver is media manager at the Institute of Economic Affairs.
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