Billionaires are wailing that Elizabeth Warren and Bernie Sanders's wealth tax proposals are attacks on free-market capitalism. Warren "vilifies successful people," says Jamie Dimon, CEO of JPMorgan Chase.
Rubbish. There are basically only five ways to accumulate a billion dollars, and none of them have to do with being successful in free-market capitalism.
The first way is to exploit a monopoly.
Dimon is worth $1.6 billion. That's not because he succeeded in the free market. In 2008, the government bailed out JPMorgan and four other giant Wall Street banks because it considered them "too big to fail."
That bailout is a hidden insurance policy, still in effect, with an estimated value to the big banks of $83 billion a year. If JPMorgan weren't so big and therefore allowed to fail, Dimon would be worth far less than $1.6 billion.
What about America's much-vaunted entrepreneurs, such as Jeff Bezos, now worth an estimated $110 billion? You might say Bezos deserves this because he founded and built Amazon.
But Amazon is a monopolist with nearly 50% of all e-commerce retail sales in America, and e-commerce is one of the biggest sectors of retail sales. In addition, Amazon's business is protected by a slew of patents granted by the U.S. government.
If the government enforced anti-monopoly laws and didn't give Amazon such broad patents, Bezos would be worth far less than $110 billion.
A second way to make a billion is to get insider information unavailable to other investors.
Hedge fund maven Steven A. Cohen, worth an estimated $12.8 billion, headed up a hedge fund firm in which, according to a criminal complaint filed by the Justice Department, insider trading was "substantial, pervasive, and on a scale without known precedent in the hedge fund industry." Nine of Cohen's present or former employees pleaded guilty or were convicted. Cohen got off with a fine and changed the name of his firm.
Insider trading is endemic in C-suites, too. SEC researchers have found that corporate executives are twice as likely to sell their stock in the days following their own stock buyback announcements as they are in the days leading up to the announcements.
If government cracked down on insider trading, hedge fund mavens and top corporate executives wouldn't be raking in so much money.
A third way to make a billion is to buy off politicians.
The Trump tax cut is estimated to save Charles Koch and the late David Koch and their Koch Industries an estimated $1 billion to $1.4 billion a year, not even counting their tax savings on profits stored offshore and a shrunken estate tax. The Kochs and their affiliated groups spent some $20 million lobbying for the Trump tax cut, including political donations. Not a bad return on investment.
If we had tough anti-corruption laws preventing political payoffs, the Kochs and other high rollers wouldn't get the special tax breaks and other subsidies that have enlarged their fortunes.
The fourth way to make a billion is to extort big investors.
Adam Neumann conned JPMorgan, SoftBank and other investors to sink hundreds of millions into WeWork, an office-sharing startup. Neumann used some of the money to buy buildings that he leased back to WeWork and to enjoy a lifestyle that included a $60 million private jet. WeWork never made a nickel of profit.
A few months ago, after Neumann was forced to disclose his personal conflicts of interest, WeWork's initial public offering fell apart and the company's estimated value plummeted. To salvage what they could, investors paid him more than $1 billion to exit the board and give up his voting rights. Most other WeWork employees were left holding near-worthless stock options. Thousands were set to be laid off.
If we had tougher anti-fraud laws, Neumann and others like him wouldn't be billionaires.
The fifth way to be a billionaire is to get the money from rich parents or relatives.
About 60% of all the wealth in America today is inherited, according to estimates by economist Thomas Piketty and his colleagues. That's because, under U.S. tax law _ which is itself largely a product of lobbying by the wealthy _ the capital gains of one generation are wiped out when those assets are transferred to the next, and the estate tax is so tiny that fewer than 0.2% of estates were subject to it last year.
If unearned income were treated the same as earned income under the tax code, America's nonworking rich wouldn't be billionaires. And if capital gains weren't eliminated at death, many heirs wouldn't be, either.
Capitalism doesn't work well with monopolies, insider trading, political payoffs, fraud and large amounts of inherited wealth. Billionaires who don't like Sanders' and Warren's wealth tax should at least support reforms that end these anti-capitalist advantages.
