Friday, March 7, 2014

Pity the Poor Billionaire

A couple years back a hedge fund manager likened himself having to pay the standard income  tax rate for billionaires, instead of the capital gains rate which is less than half the former, with the Nazi invasion of Poland. Poor besieged fellow.
He’s a manager after all, not the owner of the resources, so why should he be entitled to the lower rate? And why is there a lower rate for capital gains? Why is income from sale of assets taxed at less than income from having a job? Or as Warren Buffet, one of the world’s richest people, has asked, Why do I pay a lower rate than my personal secretary? Simple answer: lots of money begets lots of power. Buffet would be glad to pay a higher rate, but he’s the rare exception.
Of course, they insist it’s good to shower billionaires with lots of public welfare because if they have lots of money they’ll make lots of jobs. It never works that way because when the 1% take all the economic gains of society, the rest don’t have enough money to buy things, thus no demand for labor to make things. They don’t call it corporate welfare, it’s called incentives. Give the big oil companies big tax breaks and they’ll drill for more oil. The largest, most profitable corporations in the world need welfare to do their job. If the government needs money you don’t end big oil subsidies, you cut food stamps, since ‘handouts’ sap poor people’s will to work. That goes all the way back to president Herbert Hoover who was aghast at the idea of feeding hungry Americans at the start of the Great Depression when unemployment stood at more than 30%. The fact that there weren’t enough jobs then or not enough now doesn’t register on the minds of regressives.
The point is that money to fund the government has to come from somewhere. If you don’t take it from the wealthy you have to take it from the lower and middle classes. All taxes are political, every one makes a political statement. There’s no such thing as a ‘neutral’ or ‘technocratic’ tax that doesn’t involve taking from one and giving to another. The conservative option is to cut government: You can save a lot of money by putting 50 kids in a classroom instead of 25.
At a time when income inequality is greater than it has been since 1929, the place to get the money is from the top, they are sitting on more money than they know how to spend. More than 90% of all the gains since the US started ‘growing’ again after the crash of 2008 has gone to the top 10%.
Just recently another long-suffering billionaire likened the anti-1% rhetoric sweeping the progressive side of politics to Kristalnacht – the night of broken glass – when shops owned by Jews all across Germany were trashed as a prelude to genocide. Asking the superwealthy to pay their fair share of society’s costs is just like the Holocaust. Poor fellow, he feels unloved by the 99%, the great unwashed masses, and evidently is afraid he’s about to be sent to the gas chambers.
He also thinks rich people should get a lot more votes. A filthy rich person like himself is a lot smarter than the sad sack who collects bottles and cans to earn a few bucks so why shouldn’t he get a few extra thousand votes? The elite of Thailand and Venezuela probably think that’s a great idea since in both cases they are demonstrating and trying to bring down fairly elected governments. They have repeatedly lost their respective elections to the populist parties in power but can’t stand to see peasants and commoners in control. The US began as a democracy, but you had to be a white, male, landowner to vote. Can we go back to those simpler times when everything was decided by a small elite?
I’m always baffled when people come to the defense of Bill Gates, one of the people I most love to hate. They think I’m angry at all superwealthy. Not at all, there’re quite a few who’ve gotten their money fairly and honestly, at least within the rules as established, and feel civic responsibility to use some of it for the betterment of the world. Gates does qualify for some of those kudos, but his craven machinations far outweigh his philanthropy. But before taking on Gates I’d like to take a step back and talk about his first partner at Microsoft, Paul Allen.
Allen owns (or did, I don’t keep up) one of the major league sports franchises in Seattle. He wanted the city build him a new stadium for $500 million, since new stadiums are designed to make more money for owners; lots of luxury boxes, et al., and threatened to take the team elsewhere if they weren’t willing to pay him tribute. Seattle said no, they couldn’t afford it. After all, ever since Reagan and the regressives started hacking away at taxes and government, there’s never enough for schools, infrastructure, etc. But he wasn’t ready to give up so he financed an initiative to get a measure on the Washington state ballot to have the whole state pay for it. He poured five million dollars of his own money into the election and got the people of the state to agree to pay for the new stadium. Here’s the rub: The guy had 20 billion dollars in the bank at the time. So add it up: $500m is 2.5% of $20b. $500m sounds like a lot of money to you and me and the people of Seattle but to him it was pocket change, a tiny part of his fortune. He could’ve gifted the stadium to the people without even noticing the change in his checkbook. He could’ve been considered a great benefactor, but instead extorted the money from the common people, including some who’re struggling to survive.
That’s the evil of wealth, no matter how much you have, you always want more and it’s not important how you get it or who gets hurt in the process. It’s all part of the game. Bill Gates is one of the worst; a large part of his fortune came from lying, cheating and flouting the law.
He started by purchasing IBM’s software division. IBM made one of the worst business decisions of all time when it sold off its software and Gates made one of the best. Now I’ll take another step back and bring Steve Jobs of Apple into the picture. Jobs’ business plan involved doing the whole process from manufacturing on down and producing a superior product that people would pay through the nose to have. Several friends urged me to go with Apple when I first got into computers in the early 90s, but I couldn’t see myself paying double for his products and having a much more difficult time getting service, since I was headed for Asia. Since he kept everything in-house and charged exorbitant prices, Apple could never get very big, but still he amassed a fortune of $6b. What did it get him? He still died young. He could’ve had a fairer pricing policy and died with only $2b or $3b in the bank. In fact, if his prices had been competitive, he might have sold twice as much and left the same fortune. But if you’re a real businessman, you’re not allowed to act that way, you’re supposed to charge whatever the market will bear even if it means soaking your loyal customers.
Gates’ business plan was just the opposite. He only cared about selling software so he opened up the hardware part to competition and soon cornered 90% of the software market. However, he wasn’t content making a lot of money, he wanted every penny he could get his grubby hands on so he engaged in serial scummy and illegal business practices. He was indicted, convicted and paid heavy fines three times in the US in the 1990s and early 2000s. In the last ten years Microsoft has paid about $2.2b in fines in Europe. The last, in March 2013 that cost the company $730m, was for repeatedly ignoring previous promises to reform. Well, it’s evidently more profitable to pay huge fines and promise to change than actually change your business practices. And for what? Gates already has $77b in the bank, richest man in the world, do you think maybe that ought to be enough to not need to resort to sleaziness to grab even more?
Microsoft is adept at using tax shelters to avoid paying its fair share of government. That’s easy when most of your value is in intellectual property. You form a corporation that holds all of your patents in a country that has no corporate taxes. There’s one modest 6-story building in the Cayman Islands that’s headquarters to 18,000 corporations. Every time somebody buys a Microsoft product part of the profit goes to the shell-corporation owner of the intellectual property. Tax shelters are used by lots of corporations and are all very legal. They’re legal because corporations like Microsoft use a lot of their money and clout to make it happen so.
His house in Renton, Washington cost him $55m. It’s a marvel of technology but not a thought or a cent was expended on sustainability or renewable energy. He was taken aback when he got his first property tax bill - $600,000!!! He complained that it was too much. ‘Yes, the house cost me $55m but I couldn’t sell it for that much so I shouldn’t have to pay taxes on the full amount.’ $600,000 was a mere .0001% of his stash, but he couldn’t bring himself to pay the bill and finance local government without a fight.
What about all the money he’s put into his foundation, about $35b? Yes, he has tried to redeem himself by supporting good causes, but he’s also spent a lot of money financing causes which I personally consider detrimental to society; charter schools, genetically modified crops, for instance. Some of that should’ve been paid in taxes so that the people through their elected government got to choose how it’s spent.
The superwealthy are sitting on about $20t in assets, that’s trillion. A 5% wealth tax would bring in about $1t, enough to put every unemployed person in America to work building infrastructure and converting to a renewable energy economy. The rich wouldn’t even know the difference, they wouldn’t spend any differently than they do now, it wouldn’t affect any of their lifestyle choices to give up 5% of their fabulous wealth to help transform the American economy.
Finally, let me end by giving a thumbs up to Rex Tillerson, CEO of Exxon/Mobil for understanding the importance of a clean environment. He’s joined his neighbors in opposing the development of a fracking oil well near his estate. Something about hurting his property values.