Morici: More foolish noise from the wealth thrashers

Peter Morici

Democratic presidential hopefuls are on steroids. Each appears intent to outdo the others with tales of the rich exploiting the downtrodden and proposing new taxes on the wealthy to redress injustices.

Applying a timeless propaganda technique – make up a lie and repeat it endlessly – radical liberals have convinced journalists and ordinary voters that wealth and income in America are increasingly unequal, and this concentrates political power, as never before, among evil plutocrats like the Koch brothers.

Sen. Elizabeth Warren proposes a 2 percent annual tax on households with wealth exceeding $50 million and cites economists Emanuel Saez and Gabriel Zucman to bolster her case. Mr. Saez is the sometime research partner of Thomas Piketty, who created quite a stir with his 2014 book, “Capital in the Twenty-First Century,” allegedly documenting these trends over the last century.

Chris Giles of the Financial Times and others found numerous errors in the statistics and basic computations. And Harvard economist Martin Feldstein effectively argued that death, estate taxes and division of wealth among heirs – not to mention the penchant of scions like Andrew Carnegie to endow charitable foundations – gives life to the old saw “shirtsleeves to shirtsleeves in three generations.”

Wealth always begins with savings from income and new ideas. Entrepreneurs invest – that is how we got Sears, Macy’s and Amazon and IBM, Microsoft and Google. Eventually, most fall from control of founders and after several generations, these visionaries become portraits on board room walls and legends of once prominent families.

If wealth did not so dissipate, income would be increasingly concentrated, as Messrs. Saez and Piketty allege, among a coupon clipping aristocracy idle on Palm Beach or active in philanthropy – but it has not.

A recent study by a Treasury economist and professors at Berkeley, Princeton and Chicago demonstrates that most of the income accruing to top earners is that of entrepreneurs who are still actively managing their businesses – it’s the return on their ideas and management skills.

Once ownership and control are transferred to heirs and professional managers, income and businesses eventually decline. A recent American Institute for Economic Research study found that the share of income going to the 10 percent of earners has hardly varied from its average over the last century by more than 5 percentage points.

Even now Jeff Bezos only owns 16 percent of Amazon and his pending divorce could cut that in half. And those who fear Amazon will eventually run everything should consider that Sears once built homes and automobiles, and Ford was in the steel and airplane businesses.

Virtually all businesses have limited scope – the critical idea, product or management process reaches market saturation as Apple’s iPhone is now demonstrating. The founders or stewards of their wealth on behalf of the immediate heirs look for other businesses to invest but eventually lose interest or do not do well – GE veered far from its roots in electronical equipment and is now collapsing.

Similarly, obsolescence kills businesses – soon Sears and likely Macy’s.

Contemporary entrepreneurs throw their weight around in politics but that is nothing new. George Washington was among the richest men in the largest colony and got appointed commander-in-chief of the Continental Army after a mediocre record in the French and Indian War.

These days most “dark money” goes to liberals not conservatives. Do progressive Democrats really want to destroy the billionaires who bankroll their movement?

All have grand estimates of the revenues these taxes would raise – Sen. Warren says her wealth tax would yield about $275 billion annually – and promise to dedicate those to noble public purposes – Rep. Alexandria Ocasio-Cortez on a Green New Deal for clean energy and infrastructure.

History teaches wealth has quicker feet than the IRS and a good measure of it will move offshore in the wake of such foolishness.

What revenue is actually gained will be squandered. California and New York City have among the highest local taxes and the former abounds with potholed roads and the latter sports a wretched subway system.

No doubt, if Sen. Warren or another wealth thrasher wins the Democratic nomination, Michael Bloomberg and Jeff Bezos will put their media machines and fortunes behind them. And if their candidate proves successful then do as Fred Trump did – find creative trusts and other vehicles to make certain smaller entrepreneurs and not their heirs ultimately pay those taxes.

Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. © 2019, The Washington Times, LLC.