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  • Ofer Setty

Taxing billionaires? Capitalists should also be in support

The actions of “market electors” conflict with fair competition. It’s likely that they’ll find ways to circumvent regulations by using the law to their advantage. Therefore, it’s better to limit their power from the get-go via taxation.

The media’s interest in the rich is not new but, since the 2008 financial crisis and Thomas Piketty’s books, interest in them appears to have increased. Recently, the discourse on taxation has also entered the political arena in light of U.S. President Joe Biden’s intent to increase the tax burden on the wealthy.

In the U.S., wealth inequality is high. The top 10% hold 64% of all wealth and the top 1% hold approximately 28% of all assets. Although there is no systematic mapping of wealth in Israel, it ranks second in the world for the number of billionaires per capita, as well as for income inequality, signifying steep wealth inequality. By the way, “TheMarker” recently published a list of the 169 Israeli billionaires.

The public’s attitude toward the rich ranges from glorification to jealousy and between appreciation to criticism of the economic damage that they cause. And all of this occurs within the context of the million (or billion) dollar question: To tax or not to tax?

Taxation in general, and taxation of the rich in particular, is typically perceived as a reflection of the economic left’s pursuit of social justice and desire to reduce inequality. In contrast, the economic right sees the benefits of the free market and associates them with reduced regulation and intervention. This perspective is also reflected in the economic plan of the new Minister of Finance, Avigdor Lieberman. Taxation of the rich, however, is an unusual action to take in this regard – not only is there no contradiction between it and the free market, but sometimes this intervention is required in order to keep the market free.

To understand the relationship between taxation and economic freedom, one must remember that in a capitalist society, the management of the economy is in the hands of individuals and not the state. A decline in the power of the state was intended to strengthen the power of the citizens but, in practice, power does not disperse among them, rather it transfers to a different group. The result is that the fear of being overpowered by elected officials leads to being overpowered by a small group which we can call “market electors.” Therefore, supporters of capitalism should join progressives in the desire to tax the rich, out of a desire for the market to function well.

Truth be told, the fact that “market electors” hold so many resources does not necessarily indicate an economic problem. Social justice is a different matter. One can imagine a situation in which the rich are “satisfied” with their ability to consume as much as their heart desires (and countless generations of heirs) by exhausting their assets. In reality, however, most of them use their power to gain more power by a variety of means. First, the rich utilize the lobbying mechanism to maintain their empires, which have thus grown at an alarming rate. Second, they acquire media outlets in order to further strengthen their economic status and influence the public on other issues as well. Third, they pay less taxes compared to others by employing complex tax planning techniques.

These three actions conflict with fair competition in which people’s achievements result from their talents, abilities, and efforts. The accumulation of capital and power can, of course, be curbed through regulating the actions of the rich, as well as their use of the law. Of course, the same three strategies can be used to lobby for the public interest, and yet it remains likely that those in power will find alternative ways to achieve what they want. Therefore, it is better to limit the power of the rich from the get-go.

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