How much is Amazon worth to you?
Jeff Bezos, founder of Amazon and owner of about 11 percent of Amazon stock, recently became the first person in history to be worth more than $200 billion. Bezos’s net worth has skyrocketed as Amazon’s share price increased about 85 percent since February, before the pandemic.
Bezos’s success, however, is not toasted in all quarters. Many despise that Bezos grows wealthier while many others are suffering during the pandemic. Just last week, protesters set up camp outside Bezos’s house with guillotine in hand, demanding that Bezos share his wealth and pay Amazon workers a $30 per hour minimum wage.
But the American economy would suffer enormously if we were to share Bezos’s wealth, either by guillotine coercion from the protestors outside Bezos’s house, or through wealth taxes, such as those proposed by Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.).
Bezos and other Amazon shareholders receive a tiny slice of each Amazon sale. Bezos’s implicit cut from your purchase is so small that you wouldn’t pay attention to it even if your bill were itemized. This is not how personal fortunes are made.
Instead, Bezos became wealthy by figuring out how to scale up his business model to seamlessly satisfy an insatiable global demand for online shopping. It is estimated that there are more than 112 million U.S. Amazon Prime customers as of last year, and North America Amazon’s sales have increased about 42 percent since the pandemic began.
There is growing pressure among progressives to redistribute wealth from the uber-wealthy. But taxing entrepreneurial wealth reduces the incentives to create and grow new businesses. At high tax rates, this disincentive may be enough that Amazon might never have been born or have become the transformational business that it is today. This raises the question of what is more valuable, how much Amazon creates for Jeff Bezos, or how much Amazon creates for the rest of us?
It is not even close. Suppose for a moment that Bezos’s net worth was taxed away and divvyed up equally among all 330 million of us. Since this calculation is just for those in America, we take only the wealth Bezos acquired from Amazon’s domestic operations, which is about 60 percent.
Dividing this $120 billion among all of us means a one-time payment of about $360 per person. After paying about 20 percent in federal and state income taxes and investing the after-tax proceeds at an expected return of seven percent per year, this one-time windfall yields about $19.20 per year.
This pales in comparison to the value consumers and businesses receive from Amazon. First, 112 million U.S. Prime customers pay $119 per year, year in and year out, for their membership. That fee, which totals about $13.3 billion per year, is a bargain just by saving those consumers car expenses and shopping time.
But Amazon’s value is much higher than that. Think of the lives that were potentially saved by making it possible for consumers to shelter at home during the current pandemic, shop online and receive their goods at their front door in just two days. Think of rural customers who can now order 12 million different products, many of which are not available from brick-and-mortar stores anywhere near them. Think of elderly and disabled individuals for whom conventional shopping is a huge burden. Think of consumers who easily comparison shop by checking prices on Amazon. Would we give all this up for an additional $19.20 per person per year?
Amazon has made Jeff Bezos the richest person in the world. But Amazon has created much more for the rest of us. Visionary entrepreneurs like Bezos are few and far between, and we desperately need more if our economy is to continue to flourish. To get more, we need to incentivize them to take huge risks and innovate with the hope that they too will create a new business that transforms society.
Without the next Jeff Bezos, we may miss out on a breakthrough green energy source, the next iPhone or a cure for cancer, dementia or heart disease. Unicorn creators become rich only by enriching society. Taxing their wealth means taxing ourselves, but at a much higher rate.
Jesus Fernandez-Villarverde is a professor of economics at the University of Pennsylvania. Lee E. Ohanian is a professor of economics at UCLA and is a senior fellow at the Hoover Institution at Stanford University.
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