Billionaires aren’t all bad — and taxing them more may backfire, these experts say

In the essay, published in the academic journal “Ethical Theory and Moral Practice,” they argued that billionaires are often more accountable to the public and better placed to tackle global problems than government officials. They made the case that raising their taxes could result in less money flowing toward reducing poverty.

The pair recently spoke to Business Insider about how billionaires often improve the world — and enrich whole ecosystems of customers, workers, suppliers, and investors — while building their vast fortunes.

Flanigan and Freiman’s responses have been edited for length and clarity.

What sparked your interest in billionaires?

It’s become increasingly popular to make claims such as “billionaires shouldn’t exist” and “any billionaire is a policy failure.” But these moral criticisms of billionaires are unconvincing because people overstate billionaires’ power and influence and overlook the benefits of some billionaires. We wanted to offer a corrective by writing a moral defense of billionaires.

What are the key insights from your research?

Market-made billionaires get rich by offering people goods and services. Often, they become successful because they invented a cool new product or they found a way to make a more affordable product. In other words, people become billionaires by making the rest of us better off, not worse off. The economy isn’t a pie of fixed size —market-made billionaires make their billions by “baking more pie.”

We also think people hold billionaires to higher moral standards than powerful public officials. There’s a widespread belief that governments should tax billionaires primarily and spend that money on public goods and anti-poverty programs. That is not how public officials spend most tax revenue, though, whereas billionaire philanthropy often focuses on providing public goods and helping the poorest people on Earth, not just people who live in their country.

The US Treasury website shows that 26% of the federal budget this fiscal year has gone toward defense and interest payments, and 48% has gone toward Social Security, Medicare, and health. Only 10% has gone toward “income security” or directly addressing poverty.

It’s worth noting that few people see billionaires’ offerings as universally good, whether it’s bullying and misinformation on Instagram, owned by Mark Zuckerberg’s Meta; the brutal and unrelenting demands on warehouse workers and drivers at Jeff Bezos’ Amazon; or the modest pay at companies such as Walmart when the three children of the retailer’s founder are each worth more than $100 billion.

How do you respond to critics who say it’s immoral, unfair, or just plain wrong that the likes of Elon Musk and Jeff Bezos have amassed such vast wealth?

We can’t tell whether it’s fair for someone to have their wealth simply by looking at how much they have — we need to know how they got it. For instance, it’s wrong for someone to become a billionaire by stealing a billion dollars. However, if someone becomes a billionaire by producing goods and services that people are happy to buy, that’s a good thing.

Again, it’s important to notice the double standards. There are politicians who have amassed way more power and influence than most citizens ever will, but whether we think that’s unfair depends on how they got that power and what they do with it. In both cases, the bare fact of inequality isn’t itself a reason to call a distribution unfair.

Billionaires are often criticized for taking the vast majority of the wealth created by their companies for themselves, instead of sharing much more of it with the workers actually producing the goods and services that are being sold, or passing on the profits to consumers in the form of lower prices. Walmart’s CEO earned about $27 million last financial year, or nearly 1,000 times the roughly $28,000 earned by its median employee, the company’s latest proxy statement shows.

Do any billionaires from the business world stand out for their contributions to people’s economic well-being?

Two examples are Steve Jobs and Jeff Bezos. Jobs democratized personal computers, smartphones, and tablets. The iPhone and the iPad have had an enormous, positive impact on people’s ability to communicate, enjoy entertainment, access information, and more from virtually anywhere.

Bezos revolutionized the way people shop. The selection of goods available on Amazon.com is enormous and vastly exceeds what was available to ordinary consumers 20 years ago. Furthermore, Amazon makes it possible to shop from home, easily return packages, and automate recurring purchases. So not only does Amazon offer people an extraordinary amount of goods to buy, it saves them a significant amount of time as well.

It’s also worth emphasizing that these technological innovations didn’t only create thousands of jobs and contribute to economic growth. Apple products and Amazon’s retail services have been especially beneficial to people who were previously underserved by the market, such as people with disabilities and people who live in rural areas.

Apple has come under fire for the poor treatment of workers at some of its key suppliers, while Amazon has long faced claims that it engages in anticompetitive practices to crush smaller competitors and achieve market dominance.

Is it redeeming when someone like Warren Buffett pledges to give away almost all their wealth, or does it not matter what billionaires do with their money?

What a billionaire does with their money matters, just like the rest of us. It’s morally good for middle-class Americans and billionaires to support effective charities. Market-made billionaires don’t need to redeem themselves, though, because being a billionaire isn’t morally wrong.

There is also an important question about whether giving away their money rather than keeping it in productive investments does the most long-term good. Billionaires who invest their money benefit their fellow citizens, too.

Should governments take steps to reduce wealth inequality by taxing or otherwise redistributing the richest people’s fortunes?

Wealth inequality, as such, is not morally objectionable. What’s objectionable about the gap between rich and poor is the poverty, not the gap. After all, there’s a gap between multimillionaires and billionaires, but that’s not something to worry about. The US government doesn’t allocate much tax revenue to alleviating poverty; — much more goes to middle-class retirees. So this isn’t a strong argument for taxing billionaires. Moreover, increasing taxes may slow economic growth, which harms those in poverty over the long term.

While some billionaires like Bill Gates have used some of their wealth to tackle global problems through philanthropy, others have given minimal amounts of money away and instead wrapped it up in trusts and other structures to reduce taxes and build dynastic wealth.

What else should people reconsider when it comes to billionaires?

Instead of saying that every billionaire is a policy failure, we should instead embrace the idea that every billionaire is a policy success. People become billionaires by providing a product or service that is so valuable that millions of people are willing to pay for it voluntarily. Think of Taylor Swift or LeBron James as examples. They’ve enriched millions of fans’ lives through their hard work and talent.

When these billionaires make a big profit, it’s because they deliver big benefits. In contrast, public officials can only get most people to pay for the products and services they provide by threatening them.

Swift’s “Eras Tour” was so popular that it helped revitalize the US leisure industry last year, even earning a shoutout in the Philadelphia Fed’s Beige Book for fueling the city’s best month for hotel revenue since the pandemic began.

One economist predicted James’ return to the Cleveland Cavaliers in 2014 would deliver a $500 million boost to the local economy, but the actual impact was likely lower.