In July, a group of 83 of the world’s richest people- Millionaires for Humanity- appealed to their governments to increase the wealth tax on them, so that economic disruption caused by the coronavirus pandemic could be managed more efficiently. The idea of taxing the assets and wealth of the rich in addition to their earnings was deemed groundbreaking.
“I need to pay higher taxes,” Bill Gates had said to Fareed Zakaria in a 2018 CNN interview. “I’ve paid more taxes, over $10 billion, than anyone else, but the government should require people in my position to pay significantly higher taxes,” he had said.
However, many people continue to oppose the idea of placing a higher tax on rich people and companies. They argue that increasing tax on these groups will reduce and hinder innovation, as most believe that innovations are made when the market has very little interference from the government.
Most people assume that the government plays its roles only in areas like education, health, and social security, and fail to see that it also provides a backbone to innovation, may it be only from behind the curtains. This has become more evident recently during the Covid-19 crisis, where countries like the United States, the United Kingdom, Russia, China, and India- not private entrepreneurial companies- are leading the research for a vaccine to fight the virus and a pandemic that has affected millions globally.
British economist John Maynard Keynes had written in his book The End of Laissez Faire (1926) that “[t]he most important thing for a government is not to do things that individuals are already doing, but to do them a little better or a little worse, and to do those things which at present are not done at all.”
Currently, there are many unicorn companies- companies that value over $1 billion- that enjoy innovations made possible by governmental investments. All the features that make an iPhone smart can most probably trace their inception to government-funded Research & Development (R&D) labs.
In addition, nearly all of iPhones’ features are reliant on the Internet, whose generator was none other than the Advanced Research Projects Agency (ARPA), an arm of the United States’ Defense Department. Similarly, the Obama administration had provided a low-interest loan of $465 million to Elon Musk, with the help of which he was able to form his electric vehicle manufacturing company Tesla.
“The high taxation of rich people is actually a government asking its proper share of the profit from those successful companies,” wrote economist Mariana Mazzucato in her 2011 book The Entrepreneurial State.
Those who are against a high tax on rich people and companies usually claim that unicorn companies create hundreds of thousands of jobs, and therefore greatly contribute to a country’s economy. However, the story is only half-told.
“We appreciate the job creation by these big companies,” US Senator Elizabeth Warren had rightly stated in a speech during her campaign in the US Democratic Party presidential primary. “But the government is an invisible player behind those jobs’ creation.”
The majority of the employees working at such profitable companies obtained their degrees from institutions that are heavily subsidized by the government. Hence, in addition to the government being thankful to unicorn companies that create jobs, the very same companies should also be thankful to the government for their contribution to the human resources sectors, and be willing to pay their fair share of taxes.
Many also argue that taxing high on the rich negatively impacts a country’s economy. In the 1950s and 1960s, the US had an income tax rate of around 91% in comparison to today’s 37%. Yet, that was a time when the US saw a great economic boom and when it formed the basis for being recognized as one of the world’s leading superpowers.
The government usually does not take credit for and from the success that companies achieve, even though in many circumstances it has the right to. Nevertheless, they continue to play a role similar to that of a godfather, investing heavily in R&D and providing huge systems of financial support to trigger industries, as well as the role of a guardian angel, coming to rescue a failing and doomed industry during periods of depression, knowing that praises and profits are usually taken away single-handedly by private companies.
Marc Benioff, an American internet entrepreneur with a net worth of $7.8 billion as of May 2020 wrote in an article published by the New York Times that “It’s time for new capitalism — more fair, equal and sustainable capitalism that actually works for everyone, and where businesses, including tech companies, don’t just take from society but truly give back and have a positive impact.”
Aashish Sunar, Sub Editor and Writer for Kathmandu Pati English, covers issues on politics, marginalized community, international relations, economics, and sports. He is pursuing an undergraduate degree in International Studies and Economics at Soka University of America. He tweets @imAashishSunar.