Taxing billionaires cuts away at life at the bottom
The UN has called for a tax on billionaires to help raise more than US$400 billion a year for poor countries
SCMP, July 7
Let's first put the United Nations' activities in a real economic context. The effort is headed by a diplomat who comes from a prosperous family in a poor country and who has never come closer to economic realities than spouting airy theories about them in a university classroom.
He hides his family wealth with protestations of concern for the poor and his ignorance of the poor in UN jargon. He loves first-class travel and the flattery of journalists who pay attention to his speeches. He's on to a good thing and his first object in life is to stay on to it. More seminars on social morality should serve the purpose.
Now let's describe a billionaire. Unless he is a sports star or actor (and their wealth rarely goes so high) he only spends a fraction of the investment income of his billions, leave alone the principal, on himself. He has already long paid off his houses, cars, boats and divorces.
Let me also emphasise that he makes his money not from salary but from his investments. Even his pay, if he is still a corporate chieftain, comes mostly in the form of investment options.
He thus looks at his income in terms of return on investment capital and has scant regard for national borders in doing so. A glance at any private banker's pitch in any glossy society magazine will show you that people with only millions to invest already take international diversification as a given. Our billionaire goes where the return prospects are best, anywhere in the world.
So let us say we hit him with another investment income withholding tax or a bigger capital gains tax. It may not be much, but the investment world is already very efficient and most of our man's investments don't yield much. He talks of his big gains. Like all of us he doesn't mention things that return him only 2 per cent a year.
But that 2 per cent is probably near his acceptance threshold and if his investment is, let's say, a block of rental flats in Canada, and his net income, after management charges, taxes and amortisations is made less than 2 per cent by the new tax, he may well decide not to make further property investments in Canada.
What then happens is that fewer new blocks of rental flats are built in Canada and, in fact, in some Canadian towns none have been built at all for decades because the returns are too low. Rent controls, an explosion of city hall permits and ever-rising taxes have rendered rental income too low to support construction of rental property.
So then the tenant lobbies start screaming that capitalism has failed them in housing. There is only one thing the government can do. It must take charge of housing and build new units for the deserving poor who can no longer even find open waiting lists for rental flats.
And where will government find the money for these projects?
Oh, that's simple. We've just imposed a new tax on billionaires. We shall take the money from this new source.
Now, I know there are some people who think that government can do just as good a job as private capital, and I concede that in some administrative tasks government can do an even better job. But it is not so in tasks involving big investment.
When government does it, enormous sums are invariably wasted in corruption, excessive administration, political sensitivity and just plain delay and bad work. Where private investment would have built four homes for any given sum, government builds only three, or two, and they are worse.
This is why the UN bureaucrats who now protest, 'Would it hurt them?' when proposing a 1 per cent tax on personal assets over US$1 billion are holding the wrong end of the stick again.
No, it wouldn't hurt them, not the billionaires. Their lifestyles wouldn't be affected at all. It's the people at the bottom of the pyramid who would be hurt. Their lives would be made more difficult in a thousand little ways by greater inefficiency in the investments that produce their daily living needs.
I have a better idea for improving their lives. Let's abolish every UN agency that pretends to an economic role.