I endlessly hear people complaining that we should tax billionaires, which we should. But the more fundamental question that is rarely asked is, why do we structure markets to allow people to become billionaires and now centi-billionaires?

It is mind boggling how there is so little questioning of the ways that markets have been structured to shift massive amounts of income upward. I always harp on government-granted patent and copyright monopolies as the most obvious way in which the government structures markets to redistribute income upward.

I focus on these monopolies both because there is an enormous amount of money at stake, almost certainly well over $1 trillion a year ($8,000 per household), and the nature of intervention should be obvious to anyone who is not determined to ignore reality. Capitalism without government-granted patent and copyright monopolies is still capitalism. We can make these monopolies shorter and weaker, rather than longer and stronger, and also use alternative, more efficient mechanisms to support innovation and creative work.

Unions and Labor Law

But that is only part of the story of how the rich have structured the market to make themselves richer. To take another example, since this is Labor Day, we should note how they have structured labor law to advantage employers at the expense of workers.

We often think of labor law as protecting workers, and to some extent it does. But it also protects employers. The most obvious way is by banning secondary boycotts. Some months back I wrongly said that this prohibited unions from honoring each other’s picket lines. That is not true, although a contract may prohibit honoring another union’s picket line.

But the prohibition on secondary boycotts does ban a union from picketing at a company’s major supplier or customer. This means, for example, that if the UAW had a conflict with GM, they could not picket a steel company or some other company supplying inputs to GM. Similarly, if the Steelworkers were striking a major steel company, they could not picket or take other actions against the auto companies that used their steel. These could be very effective tactics that the government will arrest union leaders for if their union was to undertake them.

So-called “right to work” laws also are measures that the government imposes to benefit employers. The government has a hands-off attitude towards the conditions that employers impose on their workers. They can require them to wear silly uniforms or make obsequious greetings to customers, which workers have to live with. The argument is that they can quit and work elsewhere if they don’t like the employers’ rules.

But if workers choose to unionize and want to have everyone at the workplace share in the cost of supporting the union, the government in most states says they can’t. And this is the case even if the employer is willing to sign a contract that has paying a union representation fee as a condition of employment. This is a clear violation of the principle of freedom of contract. Incredibly, in US politics, it is the union contract itself which is presented as an interference with individual freedom.

Governments Create Corporations, not the Free Market

Going further into the basics of the economy, the legal structure of corporations is an obvious intervention in the free market. Individuals can freely form partnerships, but a corporation as a legal entity requires the government.

There is a plausible argument that allowing the establishment of corporations as legal entities can foster economic development, most importantly by making it easier to raise capital for major investments. If individuals or partners sought to raise money without corporate status, they would put their entire wealth at risk if the business went bad. The limited liability associated with corporate status means that only the assets of the corporation can be tapped to repay loans or other liabilities, not the shareholders’ personal assets.

The quid pro quo for corporate status used to be that corporations paid the corporate income tax. Profits that were leftover after paying the corporate income tax were available to be paid as dividends, re-invested, or whatever the management of the company desired.

This has changed hugely in the last 70 years, as Congress created the “S-corporation.” These are corporations that enjoy the benefits of corporate status, including limited liability, without having to pay the corporate income tax.

Originally, the S-Corp was established to benefit small businesses, but the restrictions on S-Corps have been widened over time so that many of the richest people in the country now run businesses as S-corps. Also, many partnerships formed by the very rich, like hedge funds and private equity companies, are now structured as limited liability corporations, which also do not have to pay the corporate income tax.

There is no reason that the government should separate corporate status, or the privilege of limited liability, from the corporate income tax. No one forces people to incorporate, if they want corporate status, they can pay the corporate income tax.

Bankruptcy Laws

The existence of and rules around bankruptcy are not written in the Bible. The government can and does change them all the time. Much of the business model of private equity (PE) depends on the abuse of bankruptcy laws. A standard practice of PE companies is to buy up portfolio companies, strip them of assets — like the real estate a store or hospital may be built on top of — and also load them up with debt which can be used to pay dividends to the PE company.

If the portfolio company manages to survive and become a profitable company, the PE company can then take it public and make a huge profit on selling shares. If it can’t, the portfolio company declares bankruptcy and the PE company moves on to its next project.

The profitability of this neat trick would be largely removed if the PE company were liable for the debts of its portfolio companies. This could be done by making a company liable for the debts of another company that it controls, as is certainly the case with the portfolio companies held by PE companies. The Stop Wall Street Looting Act, proposed by Senator Elizabeth Warren, would have done this. If we had changed the bankruptcy laws along these lines, many of the great fortunes accumulated by PE partners would not exist.

Reform Section 230 to Make Facebook and X Less Profitable

Section 230 gives Mark Zuckerberg and Elon Musk protection from liability for spreading defamatory material on their platforms. While print and broadcast media can be held liable for spreading lies, as Fox was when it paid $787 million to Dominion for promoting lies about Trump winning the 2020 election, social media platforms have no similar concerns because of Section 230 protection.

There is an argument that they can’t possibly be responsible for monitoring the hundreds of millions of items that are posted daily, but they could be required to respond to takedown notices as they already do in the case of copyright infringement. It would also be possible to structure a reform of Section 230 to allow sites that do not rely on advertising or sell personal information to continue to enjoy the same protection they do now.

Change the Rules So the Billionaires Aren’t So Rich

In a society with enormous inequality, it is understandable that many people (including me) want to tax the billionaires. But massive inequality of wealth also translates into massive inequality of power. The billionaires won’t nicely agree to have their massive wealth taxed.

If anyone had paid attention to how they had been rigging the rules, we would have many fewer and poorer billionaires today. We can and should continue to push to make the billionaires pay higher taxes, but we should also push to restructure the rules for the market so that less money goes to the top in the first place.

This first appeared on Dean Baker’s Beat the Press blog.

The post The Rich Wrote the Laws So that They Get all the Money, While the Left Was Sleeping appeared first on CounterPunch.org.

This post was originally published on CounterPunch.org.