Derek Bullen is founder/CEO of S.i. Systems, a large Canadian professional services company. He employs thousands of S.i. Systems consultants, who work on information technology projects for blue-chip corporations and government agencies across Canada. He pays a lot of taxes, and everybody he employs pays taxes. They all buy things and otherwise participate in the economy. Bullen is just fine with paying taxes and employing a lot of people, and he thinks people generally ought to appreciate how much the arrangement benefits everyone.
Bullen’s new book, In Defence of Wealth: A Modest Rebuttal to the Charge the Rich Are Bad for Society, he argues that popular resentment of the rich is misguided and asserts that wealthy people aren’t the enemy, but the solution to our social challenges. We asked him a few questions.
There was a saying during the French Revolution that went something like every rich man is a thief or the heir of a thief. Is that what you mean about a “social Cold War” against the rich, that the rich feel unappreciated, or perhaps even persecuted?
I don’t agree with the relevance of the quote for two reasons. First, the bourgeoise and lower classes combined as one force, called the Third Estate, in the revolution to bring down the French Monarchy. They were on the same side. Second, the quote you are referring to was said 500 years prior to the French Revolution by a 13th century bishop. He was providing slogans to workers protesting the monarchy. The “rich man” in your quote is nobility, the merchant class of wealth creators did not fully form until hundreds of years later during the renaissance.
However, this is a good example of how random and incorrect beliefs are used to foment the social Cold War against the rich. Common beliefs are often incorrect — such as how the rich make money, the relationship between wealth and poverty, who pays the most taxes, and who benefits from wealth. These views are mostly pejorative and untrue. My book shows the other side of the story, for instance:
-The wealthy pay more income taxes than anyone else each year
-Most millionaires and billionaires make their fortunes in their lifetime; they don’t inherit it
-The wealthy pay the vast majority of the money they create to others and only keep a small percentage for themselves
When you speak of wealth creators you refer to “the few who can invest, take risks, innovate and transform their ideas into successful businesses that create wealth and employ others.” Do you think that would grind to a halt if the earnings of hedge fund managers were taxed as income instead of as capital gains, or if the marginal tax rate were increased a few percent?
Yes, I do believe that unfair taxation is extremely costly to the society that imposes it. Taxing the rich has been popular over the centuries, yet always with disastrous consequences. Wealthy people know when they are overtaxed and either move or stop buying. This isn’t my opinion, this is fact. Here are two recent examples of how a tax increase of a few percent was enormously costly to the governments of France and the U.S.
-In 1988, France did as you suggest and taxed their wealthiest citizens just a negligible .5 to 1.5 percent annually on their assets. The more you owned, the more you paid. They anticipated many billions in windfall taxes. The opposite occurred. France lost over $1 trillion with the new tax. The double tax triggered a sizeable exodus of wealth creators and entrepreneurs out of France. Macron cancelled the wealth tax in 2007, saying, “It’s all well and good to want to spread wealth, but you first need to produce, to create wealth before redistributing. That’s how it works.”
-President George Bush Senior introduced a luxury tax of 10 percent in 1991. His economists anticipated the wealthy would easily pay the extra tax on luxury items, resulting in $9 billion a year in new tax revenue. Yet sales of high end boats, jewelry, luxury cars, small planes and other luxury goods dropped dramatically, causing massive layoffs in multiple states. Tens of thousands of jobs disappeared overnight. The economic cost was massive and the additional revenue over 18 months was only $12 million. At the request of the hardest hit states, Bill Clinton repealed the tax in 1993.
The wealthy are already highly taxed. We pay the majority of taxes. The top 1 percent of income earners in the U.S. earning over $546,434 a year pay the same amount of tax as the first 90 percent of taxpayers. You read that correctly — the first 90 percent of taxpayers benefit from the top 1 percent on all the roads, schools, hospitals, law enforcement, firefighters, and other government services we all enjoy. For myself, I’m more than okay paying half of every dollar I earn in taxes, however, if I have to pay more than 50 percent it’s no longer a fair game. I don’t mind working for everyone else in the first 6 months of each year, as long as I get to work the last six months for myself.
How significant to this “anti-wealth narrative” is the Great Recession and the foreclosure crisis that followed?
The Great Recession was psychologically intense. There were two key parties responsible. Banks were providing loans to people who couldn’t afford them, and people in turn were taking on new home loans they knew they couldn’t afford. People stopped paying on their loans, and the bubble popped. The recession caused widespread pain and uncertainty. It was the worst financial crisis since the Great Depression. When there’s pain, there’s the need to blame. It’s part of our culture and there was a lot of blame to go around. The banks, the borrowers, credit agencies, brokers and borrowers all played their part. It was a bit of a meatball, and hard to know exactly what had happened.
The notion that 1 percent of the population took all the money away from the other 99 percent was an easy slogan for an angry mob to believe, but of course it wasn’t true. Everyone was affected by the Great Recession. The stock markets lost $7.4 trillion in value in just one year, some banks and brokerage firms collapsed, foreclosures went through the roof. It wasn’t a good time for anyone. We were all affected, we were all to blame.
You note that the anti-wealth narrative is the perception that the very wealthy are treated differently, but that seems to be more than just a perception. In the aftermath of the savings and loan crisis in the 1980s, there were over 1,000 felony convictions in major fraud prosecutions. When Enron went bankrupt in 2001, the most senior executives went to prison for white collar crimes. By contrast, just one banker from Credit Suisse was convicted of anything following the Mortgage Crisis. Does all that contribute to the perception that the very wealthy receive special treatment?
Markets will go up and down and recessions generally come every seven years. They can’t be controlled, predicted, or regulated. They just happen on their own accord. I don’t think putting people in jail for taking a loan out they couldn’t afford is a good approach. Jailing bankers for selling securities and loans according to the laws and regulations at the time is also inappropriate. Recessions are a natural cycle.
What’s less known is that the government and taxpayers have made significant amounts of money from the Great Recession bailouts. The government spent $635 billion bailing out the Troubled Asset Relief Program (TARP), Fannie Mae and Freddie Mac. Since then, $390 billion of principal has been repaid, and the US Treasury has collected an additional $353 billion in revenue from its investments. A total return of $743 billion to date, and it continues to pay back. The U.S. government and the American taxpayer have realized significant gains on the bailout.
There are 136 countries that have signed an agreement to set a minimum corporate tax rate of 15%. Is that a result of the “anti-wealth narrative” you refer to? Presuming this comes to pass, will this minimum tax discourage wealth creation?
I don’t think so. The 15 percent minimum tax was proposed to put all countries on parity and stop international organizations locating operations in lower tax jurisdictions. I don’t believe the 15 percent minimum tax will ever happen. There will always be competitive countries welcoming people, companies, and jobs with attractive tax rates. A big company coming to a new jurisdiction is a welcome addition. It brings new jobs, tax revenues, infrastructure investment, and multiple spin off benefits. Just as retailers have sales to entice people to spend money in their stores, there will always be countries competing with lower taxes to get wealth creators to invest in their country.
Any points you want to make that I have not asked about?
I’d like to address the common belief that CEOs are overpaid. Top CEOs create hundreds of millions — or even billions — in wealth locally and globally. They are rare and highly skilled. In 2020 the top CEOs in our largest 350 companies earned on average of $24.2 million, including options. While that might seem like a lot, they were paid less than the top YouTubers, actors, and musicians, and significantly less than our top athletes. I think we need to realize that good CEOs and entrepreneurs create billions in wealth for the rest of us and are to be celebrated. They’re fairly paid for the wealth they create and we want more, not less of them.
Thank you for the interview. I wish you prosperity, freedom, and a healthy life.