Apr 6, 2024

The conversation around wealth, particularly the wealth of billionaires or the Top 1%, has intensified. With some pointing to inequality, many ponder whether the ultra-rich hold the key to solving some of the most pressing financial challenges faced by the Nation including the funding of public services through taxation.

Amid discussions on tax reforms and increasing the tax burden on the wealthiest, a crucial question arises: Can Billionaires and their fortunes significantly impact U.S. tax revenue needs if fully utilized?

Assessing the Solution

As of April 2023, there were approximately 2,600 billionaires globally¹, with approximately 750 of them residing in the United States. This number is surprisingly low to many people, and the perception from Media may give the impression that many more people live the lifestyle of the rich and famous, like the Kardasians, than actually do. Cryptozoologist Grover Krantz estimated that there were roughly 2000 BigFoot creatures in North America, and if you believe that then you literally have a greater chance of meeting BigFoot than an actual Billionaire in person.² However, if you did meet them the collective net worth of all U.S. billionaires was estimated at about $4.5 trillion according to Forbes data³.

This is a staggering figure for sure, yet alone for less than 1000 people, the kind of wealth that is hard to comprehend for the average American. However, one’s beliefs and feelings regarding Wealthy individuals and how their wealth should be used and our right to use it is distinct from the elephant in the room: are Billionaires the solution to our Tax problems, and budget shortfalls? 

Take it All

To answer this hypothetical question let’s say we appropriated, not just raised their Taxes, but took  the entire fortunes of all U.S. billionaires and completely wiped them out, would it cover the U.S. tax needs, and for how long?

For fiscal year 2023⁴, the U.S. federal government spent around $6.2 trillion even though we collected only $4.5 trillion through taxation with the 2024 Federal budget at $6.9 trillion.⁵ This figure far exceeds the total net worth of U.S. billionaires, and that doesn’t even include State, and Local Taxes which would be over $10 trillion annually spent by our Government as a whole. Thus, even if we theoretically seized and liquidated all billionaire assets, it would only cover a portion of a single year’s federal expenditures, and clearly not be a long term structural solution, what would you do in year 2, year 3? 

Challenges with the Solution

Even if you thought this hypothetical situation was a great idea, disregarding the substantial legal and ethical issues taking all of a citizens property create, the challenges and problems it presents make even the thought of using all billionaire wealth as a one time boost would prove  even less valuable and daunting on a practical basis. First of all, most ultra Wealthy individuals do not derive most of their networth through income like everyone else which makes their wealth harder to tax and retrieve. They have things like art, equity in companies, stamp collections, Real Estate, and physical capital equipment like Yachts. These things are not cash, they could be assessed at wildly different prices, and at great effort by Federal agencies like the IRS, and much of their wealth may not be easily convertible to Cash. If their cumulative wealth is liquidated, and in this case all at once, it would potentially greatly reduce the value of their assets. I mean, if you took all US Billionaires away, who really is going to buy that $50 million dollar Picasso – how big is that market without Billionaires? If all of the shares they have were sold all at once on the open market, prices of these companies would plummet immediately and drastically, greatly altering their theoretical value and estimated net worth impacting individual investors, mom and pops, retirement plans and pension funds all at the same time. 

Bottom line, even if you were successful at capturing their assets they would likely be a small portion of their originally estimated value. All this makes the assumption that you would have access to all their assets, and that they wouldn’t hide their wealth, move it offshore, to another country, someplace outside of US reach. Given that they are likely the ones with the means, and ability to pull this off with armies of lawyers, accountants, foreign officials, and banks in their pocket, it would be hard to imagine all their wealth being exposed. However, if the capital, jobs, and innovation that these individuals put into our country disappeared overnight the economic disaster that would ensue after the impact to many of the worlds largest companies through seizure of billionaires assets (which include privately owned companies) and loss of their intellectual and monetary capital, could and probably would have major impacts on the US economy, and likely have a global impact. 

Tax Some, but not all, but clearly more

So now that we understand the challenges and implications of taking it all, we can assess the more practical solution of taking some, but not all, but clearly more than we do today from Billionaires. While this is a more likely scenario, and potentially more sustainable, it too has a number of challenges. First, if taking all their wealth wasn’t enough, how is taking a much smaller percentage going to help? Let’s assume that all the tax loopholes are plugged up, and the rates on millionaires increase, President Biden has proposed a minimum 25% tax on the ultra wealthy.⁶ Given that more than 2/3rds of the approximate 750 Billionaires in the US have less than $5 Billion in Net Worth, if you were able to generate a very substantial $250 Million per year each from this group would net roughly $150 Billion a year. This scenario still isn’t likely given that many of the challenges and implications previously discussed still apply to this scenario, and taking 5% or more of their net worth per annum may not be sustainable. However, since it’s all theoretical it’s a nice budget filler, although it still doesn’t address our needs with annual budget shortfalls over a Trillion dollars. The Interest line item alone on our National Debt was more than 4 times this amount, and growing rapidly ($659 Billion).⁷ The Kiel Institute for the World Economy estimates that since February of 2022 the US has sent $75 Billion in aid to Ukraine alone⁸, and that does not include the $95.3 Billion dollar Ukrainian and Israeli aid package recently passed in the US Senate together more than the budget filler for just these one time aid packages.⁹

The Answer

A portion of the population may support these routes, though maybe not realizing the challenges and implications, whether it be because of the squeeze of higher taxes and the need/want for more services and the inability of the lower and middle class to pay for these, or the thought that the wealthy don’t pay their fair share (See our article on Fair Share), or that Wealth Inequality is unfair in general and they don’t like it, that the tax system has so many legal loopholes that wealthy individuals can exploit to have lower taxes than the poor, plain simple old fashioned jealousy, or the fact that it’s a lot easier to spend other people’s money. Whatever the reason,  the concept is clear: Let the ultra rich cover the burden. 

Political Calculus

Sadly, Politicians have already done the math, and they understand that it doesn’t work out. They know that Billionaires aren’t the magic bullet, but it makes for great campaign rhetoric and easy sound bites for those willing to believe it and it’s a lot easier and less politically risky than actual solutions. Unfortunately, there is no easy solution to properly fund the US government without significant “investment” from ordinary taxpayers and more responsible fiscal management by our Government. The solutions are Simple, but not Easy. Just like a family that is spending more than they make, the only two solutions are to spend less, or make more. While simple, those are never easy; cutting spending, government shrinkage, and/or higher taxes across the board don’t sit well with the electorate. 

“I could end the deficit in five minutes. You just pass a law that says anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.”¹⁰

Warren Buffett

Summary

While the wealth of billionaires is vast, it’s a drop in the bucket of our trillion dollar annual budget deficit and $34 trillion dollar national debt challenges, viewing it as a panacea for the U.S.’s fiscal challenges overlooks the complexity of the economy and the nature of wealth. Tax policy is a tool that can influence wealth distribution and revenue generation, but it requires a balanced approach that considers economic growth, fairness, and sustainability. Simply put, there’s no magic bullet when it comes to tax policy and fiscal sustainability. Like a complex puzzle, it demands careful consideration of each piece to create a coherent and effective solution and the will and stomach to handle it. Billionaires may not be the answer, but they can surely be part of the answer, along with a lot of other ordinary people. Our choices as Citizens of how many services we want, how much we want to pay for them, and who should bear the burden are the balancing act that shapes our democracy.

Are Billionaires the Solution?