The Unbearable Ignorance — And Arrogance — Of Ro Khanna
A couple of weeks after successful entrepreneur Mark Cuban said that California’s “billionaire tax” would strangle the state’s economic future, California Rep. Ro Khanna, a lifetime politician, took to the pages of the Wall Street Journal to tell people like Cuban that they don’t know nothin’ about birthin’ no new businesses.
Cuban, who’s been a prominent supporter of Democrats, warned that if California’s Prop 40 passes, “only idiot startup founders stay in Cali,” adding that “I will make NOT being in California a prerequisite for an investment.”
Khanna calls the tax, which would be a supposed one-time levy on the wealth – not income – of billionaires unfortunate enough to reside in California, “a pro-business measure” that “will deliver economic benefits for all.”
But in trying to defend the wealth tax, Khanna managed only to discredit the idea … and himself. Here’s the basic outline of his argument.
The 1950s show that we can tax the rich and still have growth. Khanna points out that the top marginal income tax rate then was 90%, and the economy thrived. Let’s leave aside the fact that those were income taxes, not taxes on wealth. But why limit the comparison to tax brackets? In the wonderful 1950s, federal spending accounted for just 15.3% of GDP (it’s 23% today). Nearly two-thirds of that money went to the military (it’s 13% today). There was no Medicare or Medicaid. No Education Department. No Environmental Protection Agency. Women accounted for less than 30% of the workforce. Jim Crow was still in force in the South. Hispanics accounted for only 2% of the population (it’s around 19% today), blacks 10% (now above 12%), and there were just 100,000 Muslims. Should we go back to those numbers as well to boost growth?
Rich people will keep working at higher tax rates. “Would any of them [referring to a few named billionaires] have worked less … if they had expected higher taxes?” Khanna didn’t actually ask any of the billionaires he names, but we know that Ronald Reagan once said that when his money from making movies hit the 90% income tax bracket, he’d stop making movies. “Why should I have done a third picture, even if it was ‘Gone with the Wind’? What good would it have done me?” Incentives matter. Any fool would know that.
Sustained innovation. Khanna then veers off into a confusing tangent about how “some societies generated sustained innovation while others fail” and that “inclusive institutions” (by which he presumably means socialist governments) do better than “extractive institutions” (free market capitalism). Well, let’s see. The U.S. has generated sustained innovation for 250 years that no other country has come close to matching in human history. The U.S. has almost four times as many Nobel Prize winners as the next in line, the United Kingdom, and 10 times as many as the left’s beloved Sweden. In 2020, the U.S. Patent Office issued more than 380,000 patents, a number that has been increasing consistently for decades (there were 66,000 issued in 1980). The only thing that can derail this innovation engine is the public policy that Khanna and his socialist brethren want to impose.
A healthier and better-educated workforce is good for business. Khanna says Prop 40 is pro-growth because it will “invest” in health care and education. We don’t disagree with his point that healthier and smarter workers are more productive. But the idea that more government spending on healthcare and public education will produce those results is fatuous. You need only to look at Khanna’s home state for proof. Spending for Medi-Cal (California’s version of Medicaid) has doubled in the past decade, while per-pupil spending has gone up some 70%. Yet Medi-Cal is plagued with doctor shortages, quality complaints, and is rife with fraud. The state’s reading and math scores are abysmal. And the businesses and families that supposedly benefit from these investments are fleeing the state in droves. Why should anyone believe that dumping still more taxpayer money into these programs will produce better results?
Shared prosperity. Khanna’s last point is that a wealth tax “supports a competitive market economy that can deliver on a promise of shared prosperity.” But, despite the endless braying on the left about income inequality, the U.S. already enjoys an unprecedented level of shared prosperity. Sure, there are lots of fabulously rich people in the country, but even the poorest 20% of Americans are richer than the average person in most European nations. California, which, as much as any state has pursued Khanna’s vision of “shared prosperity,” is struggling with the country’s highest unemployment rate, a mass outbound migration, crumbling infrastructure, high rates of poverty and homelessness, and is nobody’s model for a vibrant, healthy economy.
In the end, Khanna ends up making a strong case. He makes a strong case that he’s an economic illiterate who should never be anywhere near the levers of power.
— Written by the I&I Editorial Board
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