Thursday 21 February 2019

Heavily Taxing Billionaires to Promote Innovation

An important issue confronting the world concerns the high concentration of wealth and redistribution of that wealth through the tax system. Part of the problem is what to do with the wealth gained from additional taxation of billionaires (and what is a politically defensible use of that additional revenue). Democratic presidential candidates are starting to create a "dream list" of things to do with billionaires' money.  Well, why not use that money to invest in research and development which may lead to more jobs, innovation (even life saving innovation), and additional tax revenue.  
Professor Michael Simkovic from University of Southern California Gould School of Law takes on general claims that taxing billionaires may lead to less innovation in a short five page article titled, “Taxes, Spending and Innovation.”  Professor Simkovic points to studies concerning patents and Nobel Prize winners.  Professor Simkovic states:

Public policy can be used to promote innovation by raising taxes and extensively funding high quality science, math, and engineering education, or by encouraging immigration of people with those skills.

There has been a general decline in the amount of federal funding in terms of real dollars for some time for the National Institutes of Health.  Well, billionaires give to universities and other charities, right?  We don't need to heavily tax them as they choose to give their wealth to charitable organizations that innovate.  Professor Simkovic notes that voluntary gifts to charity, including to universities, is relatively small at “2% of GDP”—for gifts from all donors.  He concludes we should look to peer-reviewed empirical work to test claims and that, “Claims that we can drive more innovation and growth through a higher concentration of resources in the hands of a small number of billionaires—while providing fewer resources to middle and upper middle--‐class knowledge workers—are not empirically supported.”  [Hat Tip to Professor Paul Caron’s Tax Prof Blog]. 

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