With this shocking headline, “Mike Bloomberg’s presidential run could cost taxpayers billions,” law professor Edward J. McCaffery accuses my candidate “in a very meaningful sense” of making himself a public charge and stealing money right out of your bank account.
Furthermore, McCaffery avers, Bloomberg’s election spending damages charities around the world.
Is this true?
(Spoiler alert: McCaffery’s full of bunk.)
The professor’s allegation
“The public is effectively picking up at least 40% of the tab for Bloomberg’s massively financed run,” McCaffery alleges.
Well, he explains, “Any dollar spent today is a dollar not taxed tomorrow under the estate tax.”
If Bloomberg hangs onto his money, then the government will tax the Bloomberg estate, upon his death, at a 40% rate.
Thus, any money he spends now, on anything, will not be in his estate upon his death, and therefore won’t be taxed when he dies.
So, under this theory, whenever Bloomberg spends any of his personal wealth — for a hamburger, a glass of wine, a ticket to see Parasite at the local cinema — we are all paying for it.
It is worse than misleading to say that “taxpayers” (i.e., you and me) are picking up the tab; in reality, the government will tax Bloomberg’s estate a few billion less than it otherwise would, but that doesn’t necessarily mean that this cost will be passed onto us. The government might deficit spend, or it might cut subsidies to tobacco farmers, or it might be so flush with surpluses that it doesn’t need the money.
Or, far more likely, the government would have more money in its coffers tomorrow because of the money Bloomberg spends today.
The sentence itself — a dollar spent today is a dollar not taxed tomorrow under the estate tax — is technically accurate but highly misleading, because that dollar will be taxed in other ways today, as soon as it leaves the mayor’s wallet.
So it is true that every dollar Bloomie spends today is a dollar not taxed tomorrow under the estate tax, but it is not a dollar that isn’t taxed.
When Bloomberg spends a dollar, it is likely that, in total, the government will collect more taxes than it would if Bloomberg saved that same dollar.
Furthermore, those taxes will be paid now, rather than many years from now, which is beneficial to the government’s balance sheet.
So the headline itself, that Bloomberg’s campaign could “cost taxpayers billions,” and McCaffery’s lament, later in the article, that “we would all ultimately be paying in part for the mayor’s ride,” are both downright false.
A simple example
If Bloomberg takes a hundred of his employees to lunch at the diner down the street in Midtown Manhattan, this costs him two thousand dollars, and he is now two thousand dollars poorer. Two thousand dollars has left his bank account, and that’s eight hundred dollars in estate taxes that the government won’t receive in fifteen or twenty years. (Or, rather, eight hundred dollars plus or minus whatever that two thousand dollars would have generated or lost over the course of a couple of decades.)
But because that money is spent today, the diner pays taxes on it today, at the current business tax rate.
The two thousand dollars that passes from Bloomberg to the diner also, in part, pays the diner’s employees, who also pay a portion of their salaries in taxes.
Sales tax makes up a percentage of that two thousand dollars, which goes straight to the government as well.
The diner spends some of the two thousand dollars on supplies, which goes to American farmers, who use part of their earnings to pay taxes.
Bloomberg’s spending binge helps the diner to stay in business, which generates more taxes.
If Bloomberg spends his money, rather than saving it, the government receives several layers of taxes today, rather than later. Receiving a dollar today is better than a promise of a dollar in fifteen or twenty years, so his decision to spend his money now, rather than hoard it, is beneficial to the government’s bottom line.
If one were to accept McCaffery’s confluence of “the government” with “taxpayers” and “all of us,” then Bloomberg’s spending today saves us all money. It’s more complicated than that, of course — a dollar to the government really isn’t a dollar that we the people don’t have to pay later — but it’s his shaky premise, and his logic doesn’t hold up on its own terms.
Bloomberg’s election spending helps the economy and costs us nothing
Bloomberg’s foes frequently accuse him of trying to “buy” the presidency, as though he is bribing party bosses and electors. But what he is doing is paying to get his message out. This involves buying ad time in the local media, who pay taxes today on the money he spends. (Plus: keeping local media in business is a social good.) Bloomberg also must generate content for local media, which involves employing legions of filmmakers and other staff, who also pay taxes.
Does Bloomberg’s election spending damage charities?
If you imagine that the alternative to Bloomberg spending $5 billion on his campaign would be for him to give it away, the fact that he’s splurging on his campaign is costing the charities dearly. The charities will never see any of the spent money.
McCaffery, every time you go out to dinner and spend fifty bucks, that’s fifty bucks that you’re not giving to your local soup kitchen.
Look, the reason I find Bloomberg’s campaign appealing is that it is issue based. He believes, as I do, that he is best positioned to solve the problem of climate change and of American gun deaths. If he spends $5 billion on his campaign, or on the campaign of the eventual Democratic nominee, that’s $5 billion spent on those problems. He has directed his cash to charities addressing those issues, but with apparent reluctance he has determined that these problems will not be resolved without a change in government. So he will redirect his resources to his own campaign, or to the campaign of the eventual nominee, if it is not him.
A condemnation of Mayor Bloomberg
McCaffery concludes his piece by averring that this is “in no way a condemnation of Mayor Bloomberg, who has presumably earned his money legally, and can spend it however he wants[.]” Instead, he says, it is a condemnation of a tax system that allows individuals to acquire such massive wealth.
OK, fair enough, but the provocative headline, accusing Bloomberg of looting taxpayers to the tune of billions of dollars to fund his campaign, certainly reads as a condemnation. Many readers glance at headlines, and that’s it. Furthermore, changing the tax rate, so that we no longer have billionaires of such extravagant wealth, would do nothing to change the alleged problem that McCaffery seems to find so distasteful, that when a rich man spends a dollar, the government doesn’t get to tax that dollar later under the estate tax. There is literally no way to solve that predicament other than killing the estate tax. As long as the estate tax remains in existence, as it should, a dollar spent today is a dollar that the government cannot tax later under the estate tax. If one favors the estate tax, this is just a fact of life.
Well, who is this apparently silly fellow, McCaffery, with his silky, flowing coif and smirking, pouty lips? He’s a professor of “law and economics,” a mostly discredited Chicago school of thought founded in part by Richard Posner, who disowned it after the 2008 market collapse.
Photo by Pepi Stojanovski / Unsplash