The GoodFellows on the California Wealth Tax and the Global War on Terror

On the latest episode of GoodFellows, senior fellows John Cochrane, H.R. McMaster, and Niall Ferguson, moderated as always by distinguished policy fellow Bill Whalen, speak with their Hoover colleague Senior Fellow Joshua Rauh about California’s billionaire wealth tax ballot measure.

Rauh has written and spoken extensively about the wealth tax, and even participated in debates with some of its leading proponents. He offers a concentrated lesson in taxation 101, explaining along the way why he doesn’t think the wealth tax up for consideration this year would make good policy.

In the second half of the show, the GoodFellows discuss the 25th anniversary of 9/11 and lessons learned in the course of the Global War on Terror. Read on for highlights from the conversation.

Quote of the Day

Joshua Rauh explains the goals of tax policy and how, in his view, the incentives created by the wealth tax in Proposition 40 stack up to that standard:

For any tax, you have to believe two things. Number one, if you want to support it, you have to believe that it’s going to raise revenue and not lose revenue for the state. Now how could tax not raise revenue? Well, if enough billionaires leave the state, then the lost income taxes of those who left could more than offset the amount of money that the state brings in by taxing the billionaire wealth at 5%. Secondly, there’s another condition: You also have to believe that it’s actually going to be good for you, the voter, good for the people. And there are often people will say, “Well, how could it not be?” . . . Would you like a tax that [hypothetically] brings in, say, a dollar for the state but kills a hundred thousand jobs? That’s not a good deal. So on those two counts, the measure completely fails.

The Central Issue: The California Wealth Tax

Joshua Rauh explains some of the likely consequences of the tax, if approved:

The amount of jobs this is going to damage, reduce pay, or send out of California is massive. We have investors from outside California like Mark Cuban saying, “I will make it a condition of investing in companies that they are not headquartered in California.” That is a very, very impactful statement. . . because it means that there’s going to be a wave of additional departures if Prop 40 passes.

Niall Ferguson offers a quick lesson in the history of wealth taxes:

History shows that there are remarkably large numbers of people who will keep running this experiment again and again and again because it’s not like this is a new idea. People have been coming up with wealth taxes for more than a century. It’s a pretty standard revolutionary idea. It often comes up at the end of wars. “Oh gee, we do have a really large national debt after that war. How about we just get the billionaires or millionaires. . . to pay for it?“ To me, the striking thing about this whole debate is its complete obliviousness to historical experience because I defy you to name an example of a wealth tax of this sort that has been a success. I can’t think of one.

Rauh then describes some of that “historical experience”:

What I can say is that recent attempts to implement wealth taxes in European countries. . . have failed. In 1990, there were 12 OECD countries that levied a wealth tax. As of now, it’s down to three. Even France, the. . . country of origin of a couple of the architects of the California Prop 40 wealth tax, Emmanuel Saez and Gabriel Zucman, even they abandoned their wealth tax, having concluded that it drove 200 billion euros of capital out of the country and was costing the country seven billion euros per year.

Key Takeaways

How does the Iran war relate to the global war on terror?

Former National Security Advisor H.R. McMaster connects lessons from 9/11 to the present conflict with Iran, arguing that vigilance and proactive action are far preferable to allowing problems abroad to develop into serious security threats. As he explains:

Problems that develop in the Middle East don’t stay there. They don’t adhere to Las Vegas rules. It’s really important, I think, to remain engaged against these terrorist organizations. I think 9/11 is instructive in large measure because we failed to respond adequately to the threat of Al-Qaeda, a threat that began with the first Twin Towers bombing using a truck bomb in [1993] after which Al-Qaeda then declared war on the United States. And what did we do? We fired a few cruise missiles at what we thought was a training camp in Afghanistan and called it a day. So what we learned from 9/11 and what the response was to 9/11 was that these terrorist organizations are a lot less effective when they’re worried about their own survival, [when they’re] more worried about that than they are about what they’re going to do to you. And it’s important to deny them a haven from which they can plan, prepare, raise funds for, [and] train for these kinds of mass murder attacks.

What are the implications of the global collapse in fertility?

Bill Whalen points out that “people 65 and older now outnumber children ages five and younger worldwide for the first time in recorded history.” He asks if this is something to celebrate, or to be concerned about. John Cochrane stakes a spot in the latter camp:

[This statistic exists] because [of] the collapse in fertility, which is worldwide. So all of your obvious causes, “Oh, we need free daycare. Oh, it’s too expensive to own a three-bedroom house in a beautiful suburb,” or whatever it is—none of that explains the collapse around the world, and the size of it is something that really is hard to imagine. Many countries are in the [range of] one child per woman, not the 2.1 you need to replace [each couple]. So it’s kind of one of those slow moving things that no one pays attention to and [will] probably [be] the defining feature of our era when they look back a hundred years from now. And we’re talking about halving the population every generation.

Recommended Reading

Niall Ferguson recommends Leapfrog: What It Will Take to Win the Global Innovation War by Josh Zoffer.

H.R. McMaster recommends those wanting to learn more about the September 11, 2001 terrorist attacks read the 9/11 Commission Report. Senior Fellow Philip D. Zelikow served as the Executive Director of the Commission.

Bill Whalen recommends listeners check out Hoover’s California Decides initiative, offering information on ballot measures in the Golden State.

Parting Wisdom

Joshua Rauh poses a few questions to those who think that no-one should ever have a billion dollars; or that massive amounts of wealth should be taxed away from individuals by the state:

Do you want a world without any of the things that Elon Musk invented? Do you want a world without any of the things that Jeff Bezos invented? Do you want a world without Google? Do you want a world without any of that stuff? Leland Stanford [industrialist and founder of Stanford University] for that matter, right? So do you want a world without any of that?

That wraps up this GoodFellows conversation guide. If you like this companion to the show, or have any recommendations for future conversation guides, please let us know in the comments below.