Here’s Why a Wealth Tax Won’t Work

Elizabeth Warren promises to be a “fighter.” Bernie Sanders promises a revolution. Together, the leading progressive Democratic presidential candidates are trying to rally a voter base around a common enemy: the ultra-wealthy.

After Bill Gates’ interview at the New York Times’ DealBook conference earlier this month, he was asked about Warren’s proposed wealth tax. Gates, the world’s second-wealthiest person, smiled and responded with a joke. “I’ve paid more than anyone in taxes. If I had to have paid $20 billion, it’s fine,” he said. “But when you say I should pay $100 billion, then I’m starting to do a little math about what I have left over.” In the same breath, he clarified he was joking.

But Bernie Sanders was unamused. “Say Bill Gates was actually taxed $100 billion,” he tweeted. “We could end homelessness and provide safe drinking water to everyone in this country… The billionaire class cannot have it all when so many have so little.”

Sanders’ quip sounds like a reasonable pro-equality message, but for it to make sense he must assume two things. First, that Bill Gates’ and other billionaires’ wealth is not currently being used to benefit the poor. Second, that government spending would alleviate poverty more effectively than philanthropy from the wealthy.

Both assumptions are dubious.

Thanks to grants from the education arm of the Gates Foundation, the share of Kentucky’s high school graduates ready for college or the workforce increased from 34 to 62 percent in four years. He’s given nearly $2 billion in college scholarships to low-income students who would be first-generation college students, and hundreds of millions more in aid to small schools serving low-income kids. And through various partnerships, the foundation has given hundreds of millions of dollars to fight homelessness on the West Coast.

The returns to scale in Gates’ work are so significant that Warren Buffett sees donating to Gates’ foundation as smart philanthropy—over three-fourths of the $31 billion he’s donated since 2006 have gone to Gates’ foundation. The Center on Philanthropy estimates that Buffett’s funding, in addition to Gates’, will allow Gates’ programs to scale even further.

Gates is far from the only billionaire philanthropist. James Simon has given hundreds of millions every year since 2004 to support math and science teachers in New York public schools and many millions more in other education and research efforts. The Walton Family Foundation, funded by the richest family in America, plays a major role in social service provision in Walmart’s place of origin, rural Arkansas. In 2016, Michael Dell sent $36 million for Hurricane Harvey relief. Mark Zuckerberg’s foundation gives hundreds of millions each year for criminal justice reform efforts, alleviating homelessness, and advancing health research. George Soros has given $32 billion toward funding anti-discrimination, education, and public health efforts in the U.S. and around the globe.

Speaking of international giving, philanthropic dollars that aren’t sucked up by Washington are free to help the global poor, many of whom are threatened by things no American has to think about, like malaria and tuberculosis. For example, thanks to Gates’ foundation, half a billion children in developing countries have received vaccinations, and 450 million people have received mosquito nets. According to the Copenhagen Consensus Center, the Gates Foundation’s medical investments have reaped a 2,000 percent return in social and economic benefits in developing countries.

To be clear: poverty is a tragedy everywhere it exists, and lifting people out of poverty in America is a tremendous social good. But Sanders is assuming that more government dollars translates to more socioeconomic problems solved.

History pokes some significant holes in that thought. Washington has spent more than $20 trillion in the half-century since President Lyndon Johnson declared war on poverty, seeking “not only to relieve the symptom of poverty, but to cure it and, above all, to prevent it.” In Johnson’s day, 27 percent of Americans lived in poverty, according to a metric developed at the time. According to that same metric, 29 percent of Americans are still impoverished today. The lesson, of course, is that throwing money at a problem can’t solve quality of life issues on its own. It requires sound administration and structural solutions that let the disadvantaged build futures for themselves.

Sanders’—and Warren’s—fixation on taxing the ultra-wealthy relies on the twofold premise that billionaires aren’t already caring for the needs of the poor, and that the government would be more adept at it. But given the track records of wealthy philanthropists and the government, and for the sake of both the domestic and global poor, we’d probably be better off if Sanders and co. just left the wealthy alone.

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John Kristof

John Kristof is a fiscal policy analyst based in Indianapolis and a contributor for Young Voices, where he writes frequently on economic issues. Follow John on Twitter @jmkristof.

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