I’ve started reading The Capitalist Manifesto, a book full of data on how free markets generate prosperity.
The author is nuanced and uses data and logic to show how we should be rooting for capitalism (instead of bringing it down).
Income and wealth inequality created as a function of entrepreneurship is not a bad thing per se. Risk-takers and innovators derive a higher income when they create much more value elsewhere.
Nobody hands over a million dollars to someone else for free. Profit earned by someone in free markets is typically a surplus made available to them because they expanded the pie for everyone. (And not because they stole it from someone else. Capitalism is NOT a zero-sum game.)
The real issue afflicting our society is slow intergenerational mobility. Kids born in poor households are dealt an unfair hand for no fault of their own. This situation is subpar for society because if talent and imagination is randomly distributed in a population, there must exist many potential entrepreneurs who never get a chance to create wealth for society (and keep some for themselves) because they’re stuck in the poverty trap.
On the other hand, when wealth accumulates across generations, it goes to descendants and relatives who have not earned their keep.
What should we do about this situation?
Here’s an idea.
We should abandon income taxes but introduce a 100% inheritance / gift tax.
Zero income tax will incentive people to work hard to increase their incomes, which only happens when value is created elsewhere.
A 100% inheritance tax because once the wealth creator is dead, they can’t consume more and a society does need to collect taxes to make investments for the future and protect its people.
What to do with the inheritance tax collected?
The government should use such taxes collected from rich dead people to stimulate entrepreneurship at all levels by becoming a limited partner in investment funds (microlenders, VCs, PEs, large infrastructure funds). This investment capital would enable people at all levels who have imagination and are willing to work hard to take a shot at creating wealth for themselves, while improving society along the way.
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