The Left is on another planet if it thinks a billionaire tax will work – Telegraph.co.uk

WhatsApp founders Brian Acton and Jan Koum make a good case study. They launched a product that 2.5bn people use to freely communicate worldwide, generating $5bn (3.6bn) to $10bn in annual revenue. The pair pocketed $15bn upon selling to Facebook. Did they deserve it? Its an unimaginable sum, but as Nobel Prize winning economist William Nordhaus has explained, transformative innovators like this are only capturing a tiny slither of the total productive value to customers.

Investors clearly think top CEOs matter a lot too. With technology and tastes changing quickly, firms prospects can hinge on a few decisions over whether to adopt risky new products or overhaul corporate practice. Observe the diverging fortunes of BlackBerry and Apple.

When CEOs resign, get poached, or die, in fact, companies valuations shift in pronounced ways, suggestive of executives potential multiplicative impacts on businesses profitability. In 2013, Burberry CEO Angela Ahrendts left to join Apple, having overseen Burberrys market valuation growing from 2bn to 7bn. Burberrys share price fell 7pc.

It stands to reason that failure to compensate existing executives sufficiently harms value too. In 2019, Namal Nawana, then CEO of UK medical devices firm Smith and Nephew, resigned, saying his 1m plus base salary wasnt enough. Under him, the companys value had grown so much that even if his personal impact was just 1pc of it, the uplift was 10 times his base pay. His resignation wiped off 1.4bn in value.

These instances dont reflect random stock volatility either. When CEOs experience unexpected family deaths distracting them from their jobs, stock prices shift.

Those with skin in the game then think founders and CEOs make a substantive difference to companies fortunes, even if the Left-wing populist doesnt.

So what would abolishing billionaires achieve? The risks are clear: though not everyone is money-driven, confiscation will disincentivise at least some of the socially productive activity driving high wealth.

With so much of billionaires current wealth locked in businesses (just 2pc is in private property, such as houses and yachts), high-net wealth taxes would force firm sales, encourage more consumption, and incentivise billionaires to give more to tax-exempt, often political, causes. Why is this economically more desirable than reinvestment in productive business assets?

And for what public revenue gain? Confiscating all but a billion each from the top 10 British billionaires would have funded 2020 UK government spending for one and a half months. A more realistic annual wealth tax would be shot with exemptions to avoid harming asset rich, cash poor farmers and other essential businesses.

Wealth taxes were scrapped in most of Europe, in fact, as they became symbolic gestures, raising, on average, just 0.2pc of GDP, as millionaires and billionaires fled and carve-outs piled up. What would that sum pay for? The royal yacht and a few infrastructure projects?

The Lefts anti-wealth populism sells the public a pig in a poke. Economists have previously calculated that 83pc of the global Forbes billionaire list made money from productive activities, not political connections. Talk of abolishing billionaires runs aground on the historical experience of taxing wealth, let alone the implications of much cruder, blanket confiscation of resources.

Ryan Bourne is the author of Economics In One Virus and an economist at the Cato Institute

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The Left is on another planet if it thinks a billionaire tax will work - Telegraph.co.uk