In his State of the Union address on Tuesday night, President Biden stated:
We have to reward work, not just wealth. Pass my proposal for the billionaire minimum tax. You know, there’s [sic] a thousand billionaires in America. It’s up from about 600 at the beginning of my term.
But no billionaire should be paying a lower tax rate than a schoolteacher or a firefighter. I mean it. Think about it.
I have thought about it. I have four thoughts.
First, if there are 1,000 billionaires now, up from 600 just two years ago, that’s good, not bad. Biden, to his credit, didn’t say it was bad. But it’s good because it means that consumers are still rewarding producers for being very productive.
Second, to allow people to become wealthy is to reward work. How does Biden think people got to be wealthy? By sitting on the couch eating bon bons? Joe Biden seems to have a “tooth fairy” view of how people get wealthy, but the vast majority of people who get wealthy in a free market do so by producing something that a lot of consumers value highly.
You might argue that we don’t have a completely free market and you would be right. Governments at all levels in the United States give special privileges to lots of groups. That means that not all billionaires earned their wealth in a free market. Occasionally, for example, governments heavily subsidize consumers to buy particular products. Tesla and Elon Musk, anyone? But the solution is not to tax those businesses more; it’s to end the subsidies.
Third, there’s another way that allowing people to get wealthy rewards work. The very wealthy own a lot of capital, much of which they created. The more capital there is per worker, the higher the productivity of workers. With higher productivity comes higher wages. Indeed, the main source of the huge growth of wages in the 20th century was the increase in capital.
Fourth and finally, most billionaires do pay a higher federal income tax rate than schoolteachers or firefighters. The table in this link tells the story. People in the top 0.1 percent of the income distribution paid over 22 percent of their income in federal income taxes, and their total federal tax bill was more than 30 percent of their income. These were by far the highest effective tax rates paid by any income group.
Think about it, Mr. President.