Davos Man, page 38
Bregman, a thirty-year-old historian from the Netherlands, was attending Davos for the first time, and he was beleaguered by the experience—the masquerade of billionaires agonizing over how to solve problems that were eminently solvable.
He was asked for his thoughts on how to get people out of poverty, a setup for his talk about basic income. But he took the question in an unanticipated direction, producing an answer that went viral.
“I hear people talk in the language of participation and justice and equality and transparency, but then, I mean, almost no one raises the real issue,” Bregman said. “Tax avoidance. The rich just not paying their fair share. I mean, it feels like I’m at a firefighter’s conference and no one’s allowed to speak about water.”
That line drew laughter from the audience, but also some eye-rolling. Under the unspoken code of the Forum, panelists were welcome to speak critically about almost anything—inequality, unaffordable drug prices, fossil fuels emissions—but implicating participants for the problem was verboten. In the central pretense of Davos, everyone was Committed to Improving the State of the World, so every problem reflected complexity, or the elusiveness of solutions—but certainly not gluttony on the part of the people in the room.
Bregman was accusing the billionaires of hypocrisy on a scale responsible for mass poverty and despair—a striking breach of decorum. Invited inside Davos Man’s lair, he was lecturing the inhabitants on their failure to live up to their own lofty rhetoric.
“I mean, ten years ago, the World Economic Forum asked the question: what must industry do to prevent a broad social backlash,” Bregman continued. “It’s very simple: just stop talking about philanthropy, and start talking about taxes.”
A couple of days earlier, Michael Dell, the technology billionaire and another signatory to the Business Roundtable stakeholder capitalism pledge, had been asked at another Davos panel whether he supported attempts to lift the top tax rate in the United States from 37 percent to 70 percent. He had argued against an increase by pointing to his philanthropic efforts.
“I feel much more comfortable with our ability as a private foundation to allocate those funds than I do giving them to the government,” Dell said.
This was Davos Man’s standard evasive maneuver in the face of a predatory challenge to his wealth: Dell was arguing that philanthropy obviated the need for taxes.
The previous year, 2018, the twenty wealthiest Americans1 had collectively contributed $8.7 billion, which was both a large amount of money, and a mere 0.81 percent of their wealth.
Politicians like Elizabeth Warren and Bernie Sanders were proposing wealth taxes as a means of securing revenue to finance ideas like universal health care and subsidized childcare. A 6 percent wealth tax applied to fortunes larger than $1 billion would have netted $63 billion from the twenty richest people—more than seven times2 their reported philanthropic contributions. Not even the most generous, Warren Buffett and Bill Gates, approached the 6 percent mark. Dell had given less than the average—$158 million, or 0.6 percent of his $27.6 billion fortune.
Not content to exaggerate his altruism, Dell indulged a corollary of the Cosmic Lie: he was against taxes reaching 70 percent not because he preferred to keep his money but out of social concern.
“I don’t think it would help the growth of the U.S. economy,” Dell said. “Name a country where that’s worked. Ever.”
This was clearly intended as a rhetorical question, but the panelist seated to his left, the economist Erik Brynjolffson, immediately blurted out an answer.
“The United States,” he said. “From about the 1930s through about the 1960s, the tax rate averaged about 70 percent. At times, it was up as high as 95 percent. And those were actually pretty good years for growth.”
At his own panel, Bregman recounted this anecdote as proof that the billionaires were pontificating about economic inequality, while refusing to do anything to address it.
“This is not rocket science,” he said. “We can talk for a very long time about all these stupid philanthropy schemes, we can invite Bono once more, but, come on, we’ve got to be talking about taxes, and that’s it. Taxes, taxes, taxes. All the rest is bullshit.”
You may have watched this scene already. People shared a video clip of it widely on social media, because it resonated as a rare bit of truth-telling amid the self-aggrandizing that dominates Davos. Yet equally striking was what came after.
The moderator of the session, Time’s editor in chief Edward Felsenthal, turned to another panelist, Jane Goodall—the world’s foremost expert on chimpanzees—to solicit her opinion on why humans had not solved inequality. He addressed her as a naturalist accustomed to thinking about the characteristics of species.
“What’s lacking in the brain?” Felsenthal asked Goodall. “Why can’t we get there? What is it about us that we see, we see the solution, and the urgency, but we can’t get there?”
Felsenthal was prostrating himself in submission to the species that was dominant on the local terrain—Davos Man.
Inequality was in large part the result of the billionaire class mobilizing lobbyists to avoid taxes while writing economic policy in their favor. But Felsenthal—a regular at the Forum, and under the employ of a magazine recently purchased by Benioff—was implying that everyone was doing their level best, that inequality was the result of something other than the billionaires plundering the democratic process. It was, instead, the manifestation of a mysterious evolutionary problem worthy of discussion by an expert on primates.
Goodall played along.
“The most intellectual creature that’s ever walked on this planet, destroying its only home, destroying the environment, and causing all these inequalities in our societies—what’s gone wrong?” she asked. “We’ve broken the link between intellect and wisdom.”
As a question of policy, reducing economic inequality is not terribly complicated. It’s just exceedingly difficult as a political objective. The government needs to reapportion wealth so that ordinary people regain a meaningful stake in society. But those who possess wealth have mastered how to use it to manipulate democracy, preventing a fair distribution.
Davos Man has consistently defeated efforts to increase his tax burden by deploying variants of the Cosmic Lie—arguing that wealth trickles down, that attempts to tax and redistribute it destroy incentives for entrepreneurs to invest and hire.
The Cosmic Lie has been a political winner for reasons that go beyond campaign contributions for Davos Man collaborators like Macron and McConnell. The concept of trickle-down rests on appealing assumptions about human nature, and the heroic achievements of individuals as juxtaposed against the faceless, joy-killing operations of government.
The fantasy of the Cosmic Lie is especially alluring for Americans because of how we tend to view our own character. It exerts a pull on our reverence for our supposed frontier identity, and the enduring myth of Horatio Alger-style upward mobility.
As he campaigned for Trump’s tax cuts in 2017, Jamie Dimon trotted out the usual argument—that corporations relieved of their tax burdens would use the extra money to build factories, expand operations, and increase pay. “That connection is real,” Dimon told the journalist William D. Cohan. “It’s indirect3. I can’t prove it to you, but I know it’s true.” He was voicing the same sentiment that has guided American economic policy going back to Reagan.
But sentiment is no longer relevant. For more than four decades, humanity has tested the merits of such assumptions through an elaborate, open-air experiment. We have allowed Davos Man to dominate, and the results are in: Cutting taxes on the wealthy has proved disastrous for the vast majority of ordinary people. It has not promoted growth. It has not yielded increased wages for rank-and-file workers. It has largely produced more wealth for the people who already had most of it.
An expansive study4 of tax cuts for the wealthy in eighteen large economies around the world found that they widened economic inequality while producing no additional economic growth or jobs. Just one part of the equation actually came to pass—life kept getting sweeter for Davos Man.
Since 1980, the share of all income5 in the United States that has flowed to those whose incomes are in the top 1 percent has nearly doubled, growing from 10 percent to 19 percent. Over the same four decades, the share received by those in the bottom half has dropped from 20 percent to 13.5 percent.
Though the United States is an extreme case, the same general trend holds throughout much of the wealthy world. In Italy, the top 1 percent6 increased its share of national income from 24 percent to 33 percent between 1980 and 2017, while the bottom half saw its share fall from 27 percent to 21. In Britain, France, and even Sweden, Davos Man has engineered a milder version of this same picture.
These four decades have exposed the Cosmic Lie as such, while revealing what we may call the Big Truth: the real sources of broad, socially beneficial economic growth are the same elements that achieved success during the first three decades after World War II—public investments in education, health care, and infrastructure.
When the government applies its money toward ensuring that people are healthier, better educated, and able to move about and communicate with one another, the entrepreneurial world can then deliver the vibrancy that Davos Man loves to celebrate. The result is innovation and new businesses that hire people, purchasing goods and services from one another, as the economy expands.
But public education, health care, and infrastructure require money. Davos Man has looted national treasuries, leaving governments in most major economies chronically underfunded. That has left them short of the resources needed to promote growth, which has enhanced the value of other strategies to win votes, such as demonizing immigrants.
This is a structural reality that cannot be solved with sexy ideas about the next technological breakthrough, or lectures to working people about their need to retrain themselves to seize the day. It will not be fixed by waiting for Davos Man to deliver on his promise of stakeholder capitalism, or whatever fresh branding he applies to demonstrate his sensitivity.
Narrowing inequality requires tinkering with the formulas that determine who receives the benefits of economic growth. It’s in good measure about the tax code.
Davos Man has created a robust industry devoted to gaming whatever tax regime the politicians design—accountants, lawyers, and financial wizards on every shore, strategizing over how to classify money, and where to move it to share as little as possible with the authorities. The fact that salaried American workers now pay a larger percentage of income to the government than their billionaire employers is a testament to the formidable expertise of this industry. It reflects how wealthy people have cannily exploited an archaic tax code. Davos Man has prospered in large part by figuring out how to get wealthier without generating much of the thing that the United States taxes—income.
Most of us cannot avoid paying taxes for the simple reason that the bulk of what we owe is transparently tabulated, removing opportunities for creative accounting. Whether we work as dishwashers or college professors, our employers calculate our income taxes and withhold them from our pay, along with our contributions to Social Security, turning them over to the authorities. If we own a home, our property taxes are typically folded into our mortgage payments. And if we fail to pay, the local taxing authority literally knows where we live and is empowered to seize our property.
We pay sales taxes when we shop—an exceptionally regressive form of taxation. As a percentage of their income, a person filling their car with gas on the way to their job at an Amazon warehouse will inevitably pay more in sales taxes than Jeff Bezos.
Davos Man has relied on tax havens scattered from Switzerland to the Caribbean to stash away some $7.6 trillion7—8 percent of all the household wealth in the world—according to one estimate. Most of this money has been officially undeclared, meaning it is beyond the purview of tax authorities.
In the United States, the top earning 1 percent of all households hide more than one-fifth of their income8 from the tax authorities, according to one study. The nonpartisan Congressional Budget Office concluded that between 2011 and 2013, Americans successfully evaded $381 billion’s worth of taxes9.
Davos Man’s tolerance for the legal risks of mischief has been enhanced by his knowledge that the American taxing authorities have been gutted. Between 2010 and 201710, budget cuts reduced the number of Internal Revenue Service auditors by one-third, severely diminishing the agency’s capacity to pursue tax evaders. Audits of households making more than $1 million11 a year have fallen by nearly three-fourths in recent years, while inspections of major corporations have dropped by more than half.
In an age of theatrical hand-wringing over budget deficits, here is an easy source of revenue. Every dollar spent12 to boost enforcement at the IRS results in six additional dollars in tax collections. Davos Man simply does not want to pay.
The problem of tax injustice goes well beyond hidden treasure and rule breaking. Davos Man has designed the tax system as a special preserve for his interests.
In the United States, federal taxes revolve around income, which means that they hit regular people much harder than billionaires. Jeff Bezos has long earned a base salary of $81,840 a year—roughly as much as the typical California elementary school teacher. His extraordinary wealth comes from the shares he owns in Amazon, a roughly 10 percent stake that was worth more than $160 billion at the end of 2020.
Even as those shares increased by more than $100 billion over the previous two years, that appreciation resulted in no taxes. Bezos was liable only when he sold stock and turned his paper increase into money, triggering capital gains taxes. And even then, Bezos and the rest of the billionaire class have managed to shrink their tax burden. Since the early 1980s, Congress—spurred on by corporate-financed lobbyists—has dropped the highest capital gains tax rates from 35 percent to 20 percent.
Davos Man has also embraced stock repurchases by publicly traded companies to limit his tax burden. Until the early 1980s, that practice was barred by regulators as a form of stock manipulation. Companies that wanted to shower goodies on shareholders had to distribute dividends—cash payments that recipients were forced to disclose as income, paying taxes accordingly. But Reagan entrusted the Securities and Exchange Commission to a longtime Wall Street executive, John Shad. He legalized the practice13, opening the way for share buybacks. That gave executives a way to lift share prices while sparing shareholders additional taxes.
Not coincidentally, the executives of corporations have reworked their compensation packages so they are paid predominantly in stock. Three decades ago, the average CEO of an American publicly traded company received 42 percent of their compensation in the form of salary, and only 19 percent in stock grants and stock options. By 2014, their salary had dropped to a mere 13 percent of their pay, while stock and stock options14 had more than tripled, reaching 60 percent.
The systematic campaign by the wealthiest people to limit their tax bills has worked with remarkable efficiency. When ProPublica published insights gleaned from a secret trove15 of federal tax documents in June 2021, the details affirmed the audacity of the undertaking. In both 2007 and 2011, Bezos had managed to pay zero in federal taxes. Others who had achieved this distinction included Tesla founder Elon Musk and the billionaire magnates Carl Icahn, George Soros, and Michael Bloomberg.
The one moment when billionaires must pay taxes on their wealth is death. Even then, Davos Man has limited the hit to his heirs. Congress has dropped16 the top estate tax rate from 77 percent in 1976 to below 40 percent, while IRS enforcement actions have almost disappeared.
This was the context for attempts by Warren and Sanders to institute a wealth tax. Their proposals took as inspiration the simple fact that rich people can always find ways to evade taxation focused on income.
Warren advocated a 2 percent annual tax on fortunes greater than $50 million, and 3 percent above $1 billion—a measure that would hit about seventy-five thousand American families. Sanders proposed a lower starting point—a 1 percent annual tax on fortunes greater than $32 million, with increases reaching to 8 percent for those whose wealth exceeded $10 billion.
Both candidates relied on the advice of a now-famous pair of French economists at the University of California, Berkeley, Gabriel Zucman and Emmanuel Saez. They estimated that Sanders’s proposal could raise $4.35 trillion over a decade, giving the government the ability to furnish universal health care and childcare, while expanding affordable housing. Warren claimed that her proposal would raise $3.75 trillion, though many experts put the number lower.
Davos Man reacted to these proposals as if the Bolsheviks were at the gates.
Schwarzman said a wealth tax would prompt billionaires to flee the United States. “They would leave,”17 he said in October 2019. “People who would come here to start businesses wouldn’t come, because the success would be taxed away.”
Jamie Dimon warned that a wealth tax was beyond the administrative capacities of the United States.
“A wealth tax is almost impossible18 to do,” Dimon said in September 2020. “I’m not against having higher tax on the wealthy. But I think that you do that through their income as opposed to, you know, calculate wealth which becomes extremely complicated, legalistic, bureaucratic, regulatory, and people find a million ways around.”
Behind this thicket of words was the reality that a wealth tax would result in Dimon paying a great deal more to the government. The previous year, he had taken home compensation worth $31.5 million. That included $6.5 million in salary and cash bonus, which was subject to income taxes, and $25 million in stock-based pay, which entailed no immediate taxes. His net worth was estimated at $1.8 billion.
