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Economics 106

Updated on April 10, 2020
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Jack is a volunteer at the CCNY Archives. Before retiring, he worked at IBM for over 28 years. His articles have over 100,000 views.

Introduction

The wealthy class is a group of individuals that have amassed a huge amount of wealth on paper. These includes Bill Gates and Warren Buffett and Jeff Bezos and numerous other billionaires. They are the ones Bernie Sanders and Elizabeth Warren love to demonize. They claim no one should own so much wealth, and the government should tax them at 90% or higher to redistribute that wealth to the average people.

- April 2020

Understanding Wealth

People like Bernie Sanders and Elizabeth Warren should know better. They should know that the wealth are not sitting around like cash in a barrow or gold bars. These billions are mostly paper value that are represented by the stocks they own. That is to say, they are invested and put to work. They are not sitting idle waiting to be spent.

For example, if the government wants to tax Bill Gates wealth, and say they increase his tax to 90%, he would owe the IRS roughly $90 billion. Where would Bill get that money from? It is not sitting in his personal vault inside his mansion in Seattle.

He would have to liquidate his shares in Microsoft. He would have to sell 500 million shares of MSFT stock currently valued at $165 per share. Do you see the problem?

Wealthy to these people is not like dollars in the bank for you and me. Their wealth is tied up in stocks and bonds, and real estate, and art and jewelry and yachts and private jets...and his non-profit Foundation. Some of which in turn generate business and profits for those companies that cater to them. For example, when Bill buy a yacht, he has to pay someone to be the captain and crew and he needs to buy fuel to run it and all kinds of services for docking and maintenance. All of them involve commerce which benefit indirectly our overall economy.

What Happens When the Government Takes It?

Assume we survive the devastation created by Bill Gates selling his assets in order to pay this wealth tax. It comes to the IRS and then goes into the General fund. This is where all the spending bills Congress pass each year draws from. As you know, in past years, we have spent more than we take in by as much as one trillion dollars per year.

After the standard overhead of government bureaucrats overseeing these programs, the net amount of 80% goes to the various States. They in turn funnel the funds down to the local level and ends up in your city or town. By then, the dollar is down to 50 cents.

The way the system is set up, it is very inefficient. That is typical of any government programs. Take the post office as an example. They charge more to deliver a package than UPS or FedEx. Why?

What Is Bernie Sanders Missing?

It is easy for some politician to make the case that no one need or can spend a billion dollars. They propose a wealth tax to confiscate the bulk of these wealth to pay for social programs like universal healthcare and free college tuitions and the Green New Deal. What they are missing is the numbers just don't add up. If you take all the wealth from these billionaires and add them all together, you still end up with a small portion of the cost of all those proposed programs.

Let me illustrate another way. If you take Bill's $90 billion and divide that by 320 million US population, you end up with only $281 per person.

Do you think that money could be better spent by Microsoft to develop the next version of Windows Operating System? or Given to the American public who can spend it to buy an XBox?

Summary

Wealth is a strange animal. It is said that if you take two individuals, one rich and one poor and you take the money from the rich and gave it to the poor, in about 5 years time, the wealth will revert back to the original individual. Why is that? It is one of the secrets of life.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2020 Jack Lee

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