4 minEconomy
Economist Argues Public Money Should Carry Terms, Not Just Wealth Taxes
Economist Mariana Mazzucato's argument that public research built key technologies behind today's largest fortunes, and that taxing wealth alone will not fix the economy.
An economist argues that taxing great fortunes makes sense but will not by itself fix the American economy, because much of the value that produced those fortunes was created with public money long before the tax would apply. The argument arrives as California voters consider Proposition 40, which would levy a one-time 5 percent tax on fortunes above $1 billion and direct nine-tenths of the revenue to the state's Medicaid program.
The column notes that Elon Musk became the world's first trillionaire in June, when SpaceX began trading on the Nasdaq. A group of Silicon Valley billionaires, including Google co-founder Sergey Brin, has spent more than $333 million opposing the measure, warning that it will push wealthy residents to leave the state. The author points out that similar fears accompanied the income tax, which the Supreme Court struck down in 1895 before the 16th Amendment made it ordinary in 1913.
The author supports Proposition 40 but says it addresses only part of the problem. A wealth tax, in this view, recovers a share of value long after it has been created, compounded and defended. The argument is that the origins of the fortunes matter, and that many of the technologies behind them were financed by government. The iPhone's foundational technologies, including the internet, GPS, the touchscreen and the voice recognition behind Siri, trace back to public research, according to the author, who cites Defense Advanced Research Projects Agency funding for speech understanding research in the 1970s. The search algorithm that made Brin's fortune grew out of a National Science Foundation project at Stanford.
The column also points to SpaceX. The company received $396 million from NASA to develop the Falcon 9 and Dragon capsule, then $1.6 billion to fly cargo to the space station and $2.6 billion to fly astronauts. The author describes the returns that founders now collect from owning platforms, data and models as algorithmic rents, and argues that the public carried the risk in the years when these technologies had no market.
The author cites the Department of Energy's 2009 loan guarantees as an example of uneven terms. The government issued a $465 million guarantee to Tesla and a $500 million guarantee to Solyndra. Solyndra, a solar panel manufacturer, went bankrupt two years later, and taxpayers absorbed the loss. Tesla repaid its loan nine years early, and the government's warrants lapsed without being exercised. The author uses the term socializing risk and privatizing reward to describe this pattern.
The alternative, according to the column, is to attach terms to public investment at the outset. The author points to NASA's early-1960s shift of Apollo contracts toward incentive structures, and to the CHIPS and Science Act, which attached conditions to $52.7 billion in semiconductor funding, including where plants are built and what jobs they create. The author says those conditions did not go far enough, since wage standards covered laborers and mechanics rather than every worker and affected communities had no formal seat in decisions. Proposed remedies include equity stakes in companies built on public loans, royalties on patents from publicly funded research, and a public fund that reinvests returns. The author also contrasts this approach with universal basic income, which leaves the origins of large fortunes untouched.
9
