Billionaires Have a Moral Obligation to Become Tax Exiles

I’ve always had a relatively high opinion of Richard Branson.  What’s not to like? But I was a bit disturbed by this:

U.K. billionaire Richard Branson has mounted a swift online defence of his decision to live to his private Caribbean island retreat, claiming he was not quitting the U.K. for tax but for lifestyle reasons.

Over the weekend, a report in the U.K.’s Sunday Times highlighted the tax benefits for the 63-year-old billionaire in setting up home on Necker Island in the British Virgin Islands.

The U.K. has an income tax rate of 50 percent for the highest earners, while Necker has a zero rate of income tax. Moving to Necker will mean that he is no longer a British resident and, as such, no longer subject to income or capital gains tax. Branson can still spend up to 183 days in the U.K., however.

(Read more: Jump! Richard Branson Wants to Skydive From Space )

“After 40 years building companies & creating jobs in the UK, I now live on Necker working on building not-for-profits…I have not left Britain for tax reasons but for my love of the beautiful British Virgin Islands and in particular Necker Island , which I bought when I was 29 years old,” Branson wrote on his Virgin blog page on Sunday.

Of course I’m glad he moved, but disappointed by the motive.  Branson had a moral obligation to leave the UK, even if he preferred London to BVI.  To see why, let’s view the following facts from a utilitarian perspective:

1.  Billionaires have way more money than they “need.”  Of course so do average Americans, so let’s be more precise. Billionaires receive very little marginal utility from lifetime consumption levels above $100 million. Therefore, they should give at least 90% of their wealth to charity.

2. In countries like Britain and the United States, government spending (at the margin) tends to be very wasteful from a utilitarian perspective. Upwards of 90% of government spending goes towards special interest groups or towards programs of dubious value. Even programs that represent the core function of government, such as national defense, tend to have zero or even negative value at the margin. Only a small fraction of spending goes towards programs such as poverty reduction and medical research, where it is at least possible that government spending is as valuable as the spending of a well-run charity.

I do understand that there are legal roadblocks that make it difficult for people like Bill Gates to become tax exiles. However the basic principle is clear; if billionaires are able to successfully shield their wealth from the tax authorities, they should do so.  Starving kids in Africa need the money much more that older Americans need a COLA in their Social Security benefits, and more than the military needs another $300 billion in fighter jets.

I presume this post will horrify big government liberals. And also those libertarians who are repulsed by utilitarian arguments that the rich have a moral obligation to give much of their wealth to the less fortunate. But I’m not in this business to please people.

PS.   Recall that there is a big difference between “expenditure” and “consumption.” At the low interest rates that we see today the flow of consumption services over 25 years from a $50 million mansion is much less than $50 million. It’s actually pretty hard to consume $100 million.  Think of all those fashionable townhouses in the West End of London that remain empty 95% of the time. Is that really a good use of our resources?

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