Entrepreneurs deserve greater respect and lower taxes
In an era of renewed interest in wealth taxes and systemic vilification of the ultra-rich, it is worth emphasizing the often forgotten point that successful entrepreneurs offer benefits for society at large that go far beyond the wealth they accumulate for themselves.
Quite apart from any philanthropy they may engage in, the rich create great benefits for all of us. Often their contribution is referred to as “giving back to society.” That implies, as Marxists typically claim, that successful business people have somehow “taken away” the wealth they earned through their entrepreneurial activity and are now trying to redeem themselves through philanthropy.
Having spent most of my adult life in the think tank world, which depends on the generosity of donors to underwrite its essential civic role of research and educational work, I am a big fan of philanthropy. Philanthropists are our partners in that very worthwhile endeavour.
But entrepreneurship itself is a “positive-sum game.” When entrepreneurs get rich, and especially when they do so on a recurring basis, it’s because they are providing goods and services their customers want or even need. They also provide livings for their employees and returns for their investors. Which means they have already given plenty to society before providing a single dime through charity.
Yes, sometimes the very rich don’t earn their money by serving others in better and novel ways. Sometimes they merely inherit their wealth, and they may just live lives of leisure on that wealth. It may not be the choice we would make in their situation. But there is nothing inherently wrong with it, so long as at some point the wealth in question was honestly earned. Moreover, many people who are not first-generation entrepreneurs themselves are very serious custodians of the wealth they have inherited and use it wisely in a successful mix of business and philanthropy.
And in fact, as reported recently in the Economist (“The rise of the deserving rich,” July 23), it is increasingly common for the uber-rich to have created their wealth themselves in useful “first-generation” entrepreneurial ventures. In the early years of this century, nearly half the wealth of the very rich was inherited, but that figure is now down to about a quarter. More and more, the rich are getting rich under their own steam, making new products or figuring out better ways of doing things or delivering services.
Indeed, as the Economist points out, the rise in the 2010s of “mobile-first internet” (apps and content designed for phones rather than desktops), which itself made lots of entrepreneurs very rich, made it easier for companies to reach consumers quickly and directly. It also allowed whole new types of businesses — from Spotify to Uber to Skipthedishes — to come into being and scale up rapidly, transforming their sectors in the process. If we want this kind of innovation to stop, by all means, let’s tax the people who make it happen!
Harvard economist Stefanie Stantcheva has written about how raising taxes reduces the expected returns to innovative effort, investment and entrepreneurship, thereby discouraging these activities. In another study looking at the effect of taxes on innovation in the United States over the course of the 20th century, Stantcheva and her co-authors find that higher taxes reduce the quantity of innovation in a given jurisdiction.
By contrast, eliminating capital gains taxes altogether would foster capital formation and the productivity that often ultimately flows from it. Several very successful jurisdictions, such as Singapore, New Zealand and the United Arab Emirates, either exempt capital gains entirely or provide significant preferential treatment for them. Missouri recently became the ninth U.S. state not to levy a state-level capital gains tax by eliminating it for individuals and phasing it out for corporations by 2029.
Bottom line? If we want to keep enjoying the benefits of innovation, we must give the entrepreneurs who become rich by bringing that innovation into our lives the respect they deserve and the policies that will encourage them to flourish by improving all our lives.
Michel Kelly-Gagnon est président-fondateur de l’IEDM. Il signe ce texte à titre personnel.