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The Very Rich Do Not Threaten Democracy

A new argument for high rates of taxation on the rich or the yearly confiscation of some portion of their wealth is that such exactions are a political necessity, because the very rich pose a threat to democracy. But the advocates for soaking the very rich or indeed abolishing billionaires offer no realistic mechanism by which the very rich threaten democracy. Nor do they account for the real benefits that the rich provide for democracy—even in additions to the incentives that the prospect of wealth provides for innovation and economic growth.

The very rich, like everyone else, have but one vote. They are a tiny minority whose voting power cannot sway elections. It is true that some minority groups can have more than the influence of their numbers. The most important avenue to wielding disproportionate power is for some relatively small group to have a common interest and a mechanism for avoiding the danger that members of the group will shirk from the common effort. Examples of such groups include unions, which rely on labor law to prevent free riding, and trade associations, which have very strong common material interests and are small enough in number to punish free riding.

But the very rich do not share substantial common interests in influencing government policy. They make their money from very different businesses—often competing ones. They have much less reason to make common cause. And thus not surprisingly, while concentrated interested groups are to blame for many policy disasters, as public sector unions are for unfunded pension obligations and trade associations of big banks for the too-big-to fail structure of financial regulation, it is impossible to identify any specific policy disasters in the United States perpetrated by the very rich. Some might argue that the rich do have an interest in avoiding taxation, but if so (and given their disparate ideologies, they really do not) they have been singularly unsuccessful. The top one percent in income pay almost 40 percent of all income taxes in the United States.

Sometimes it is said that the rich have undue influence because they can use their money to broadcast their views. But as I have noted before, the very rich have divergent ideological views. It is a benefit to democracy that we hear more about the candidates, no matter what the source. And, in comparison, journalists have more influence and far more uniform views. Yet no one suggests that we should take away resources from them because they exercise their First Amendment Rights. Indeed, given the rise of digital disruption, many journalists have to thank the rich for their jobs, as when billionaires like Jeff Bezos buy publications that may otherwise disappear.

And this last point underscores the benefits that the very rich provide to democracy. They have the money to support the crucial infrastructure of democracy that might otherwise be underfunded. It is too simplistic to think of democracy as a matter of mere voting. For instance, it also requires knowledge about the effects of policies if these policies are to improve over time. And the very rich are in large measure responsible for funding that infrastructure, by giving to universities, think tanks and now by supporting journalism. Democracy also only works if the mass citizenry has the skills to understand the information and the rich are in the forefront of K-12 reform. It might be thought that government can do all this itself, but it lacks the information to choose the best infrastructure and in many cases like K-12 education its efforts are distorted by groups that in fact have concentrated influence like public sector unions.

To be even more concrete, this website would not be possible without the decision of a very rich couple—Pierre and Enid Goodrich—to endow Liberty Fund with most of their worldly goods. We should feel gratitude, not envy, toward such people.

Reader Discussion

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.

on February 12, 2019 at 09:36:31 am

Which billionaires came to the defense of Indiana's RFRA, then? Gee, I'm trying to think of some....

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Image of A
A
on February 12, 2019 at 12:24:48 pm

Here's what would (will?) happen:

1. Wealth tax passes
2. Wealth tax bracket ratcheted downward (you no more "need" $10 million than you need $50 million); marginal rates up.
3. The rich begin liquidating bond and shareholdings to pay tax.
4. Market nosedives, wiping out billions in accrued 401(k) values, leaving what's left of the middle class with insufficient retirement funds.
5. It's the Republicans' fault.

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QET
on February 12, 2019 at 12:40:18 pm

#5: Those DAMN Republicans always want to hurt the middle class. who can argue with the Logic of the Left?

BTW: Perhaps, these Dopey Dems DO NOT understand the changes that have occurred over the last several decades, due no doubt to the legions of university *[mal]educated inundating all levels of the economy, in which we find that ALL (yes, even Orange county) of the wealthiest counties in the US vote DEMOCRAT.

One does love it when the Left continues its never ending consumption of it's own.

BTW2: Rappaport misses the "collusion" (now that is a *popular* term, nowadays) of the rich, notwithstanding the fact that they may have SOME variance in their business or corporate interests. As an example, it would appear that oligrachs of both the Right and the Left would seem to be in *consonance* on the dire need for CHEAP LABOR. The funding these oligarchs provide to the various members of the Legislature, NGO's etc MAY be said to have an outside influence on the eventual policy prescriptions (or lack thereof) that eventually result.

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gabe
on February 12, 2019 at 13:31:28 pm

I’ve got a question. If tax laws are crafted by the rich, wouldn’t that make the rich a kind of faction?
I really do not know the answer to that question, but when I think of Federalist 10, the question really does seem to ask itself.

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Image of Kas Zoller
Kas Zoller
on February 12, 2019 at 14:41:42 pm

I have no doubt that the rich act together often as a class to foment government policies that protect or enhance their wealth and/or wealth prospects. But I just find it ironic that few commentators these days seem to acknowledge that the same market that inflates the equity and bonds held by the super-rich to super-rich levels is the same market that turns $50,000 in 401(k) contributions into a $500,000 retirement fund for people who have no other sources of retirement income except social security. Government workers, whose unions seem to dominate politics at all levels, have defined benefit pensions, which they can start drawing on after maybe 20 or 25 years of work, so they can afford to march around at union-orchestrated protests holding stupid signs damning the rich.

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QET
on February 12, 2019 at 14:49:53 pm

Thanks for the response. I’m not focusing now on how people exercise power. I’m thinking about how to best to balance power so that no particular faction has too much power.

I agree with you that people often behave ridiculously and hypocritically, but I would add that this propensity is not the sole domain of any particular group. Vice and folly seem to be equally distributed already.

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Kas Zoller
on February 12, 2019 at 17:15:03 pm

And hey, BTW: "...so they can afford to march around at union-orchestrated protests holding stupid signs damning the rich." - recall that many of these Gubmint workers are participating in these events while being paid BY THE GUBMINT as part of Gubmint recognition of "needed" union activities.

BTW2: It is not just 401(k) account holders who will suffer; many defined benefit pension plans also ACTIVELY participate in the equities markets.

So once again, we observe the feebleminded formulations of the Proggies "eating their own."

I'm luvvin' it!!!

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gabe
on February 13, 2019 at 05:51:11 am

[…] Rich people, especially the superrich, pay far more in taxes than the poor. And as John McGinnis notes, the superrich disagree about ideology.  It may be that corporations and labor unions have undue […]

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Image of Helping the Poor Versus Reducing Inequality
Helping the Poor Versus Reducing Inequality
on February 13, 2019 at 06:49:32 am

Democracy ? The US is NOT a democracy, we are a Constitutional Republic. The Founding Fathers rejected democracy be cause as John Adams said," Democracies never last long, they soon waste, exhaust and murder themselves."

Alexander Hamilton said, "We are now forming a republican government. Real liberty is never found in despotism or the extremes of democracy, but in moderate governments."

James Madison said,"Democracies have been found incompatible with personal security or the rights of property; and in general been as short in their lives as they have been violent in their death."

Thomas Jefferson,"Democracy is 51% of the people taking away the rights of the other 49%. "

John Marshall said,"Between a balanced republic and a democracy, the difference is like that between order and chaos."

The founders did everything they could to prevent us from having a democracy, yet the lie is propagated by people still referring to the US as something it is most definitely NOT !

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Jim Lewis
on February 13, 2019 at 12:02:46 pm

I love the rich. No poor person ever employed me, or bought the services of my business.
In fact, without government to shake down the unwilling, most of the very wealthy in history got that way by so reducing the costs of living that even the poor could afford them. And by so dividing labor tasks in their capital structures, they employed the unskilled/low skilled poor...

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OH Anarcho-Capitalist
on February 14, 2019 at 07:14:31 am

[…] Rich people, especially the superrich, pay far more in taxes than the poor. And as John McGinnis notes, the superrich disagree about ideology.  It may be that corporations and labor unions have […]

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Image of Helping the Poor Versus Reducing Inequality – Building Blocks for Liberty
Helping the Poor Versus Reducing Inequality – Building Blocks for Liberty
on February 14, 2019 at 09:58:55 am

Upon sentencing, John D. Rockefeller is reported to have said (paraphrase here) :And I am accused of what? Building an economy? a nation?

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Guttenburgs Press and Brewery

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.