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Source link: http://archive.mises.org/8442/why-everyone-should-be-in-favor-of-reducing-taxes-on-the-rich/

Why Everyone Should Be in Favor of Reducing Taxes on the “Rich”

August 28, 2008 by

What Barack Obama and Hugo Chavez have in common is the conviction that prosperity can be achieved by consuming the means of production. But capital accumulation and economic progress depend on saving and innovation, and these in turn depend on the freedom to make high profits and accumulate great wealth. The impediment that stands in the way of people recognizing that everyone benefits from tax cuts for the “rich” is the collectivistic habits of thought inspired by Marxism and its doctrine of class interest. FULL ARTICLE

{ 13 comments }

Bill August 29, 2008 at 11:52 am

Thanks for a very good and very timely article, George.

I often make the contention when discussing these matters, that all taxes are ultimately paid by the working class or poor. If not directly, then through higher prices, lower wages, and fewer jobs.

One area this article didn’t dig into, is that capital is much more mobile than you are. High taxes on the profits from capital will drive that capital to other markets, where better after-tax returns can be found. This results in a loss of economic activity and subsequently fewer job.

On the other hand, lower taxes on profits will attract capital from other markets.

How about a bumper sticker:
“It’s the capital accumulation, stupid!”

Geir August 29, 2008 at 12:03 pm

Beautiful piece of article and to repeat Bill’s comment, a timely one for sure. It’s always a pleasure to read Reisman’s spanking of the Left with harsh economic truth.

Curio August 29, 2008 at 3:03 pm

While I agree with some tenets of the argument, I am skeptical of others. For example, the arguments tend to be based upon the predication that tax increases are aimed exclusively at businessmen and corporations. However, what of the vast majority of businesses, which are small businesses that do not fall under Obama’s status as “rich”? Are not these businesses the backbone of the economy? These small businesses would benefit more under Obama’s plan than currently. That fact was conveniently neglected, and makes me suspicious of the writer’s motive.

I would argue that a more valid argument would be to cut federal spending on such black holes as the department of defense for example and simultaneously reduce taxes for all – “rich” and the lower classes.

But if forced to pick between cutting taxes for the “rich” versus the other 98% – I would vote for the other 98%. Why? Because we are ultimately a society of consumers, and freeing up more money to all the consumers will inevitably lead to a huge rise in demand for products and services. Furthermore, as stated above, this would also help the majority of businesses – local, small businesses – which in turn support local economies rather than helping huge, multinational corporations which help foreign developing nations and encourage the federal gov to meddle in the political affairs of those unstable regimes.

Dick Fox August 29, 2008 at 4:02 pm

Curio,

You must not be a regular here.

It appears that your economics is Keynesian demand side.

Let’s talk. If you buy bread from me and I use that money to buy ingredients and maintain my equipment what happens when the tax man takes from me and gives it to you? Well, you are excited because you have more to spend on my bread, but, guess what? I don’t have as much money to spend on ingredients and maintaining my equipment so I can’t make as much bread.

The tax man has “stimulated” consumption but he has done it at the expense of production. No matter how much money you have you can only buy what exists.

If you want to see a real life example of this read the history of Soviet Russia. Goods were cheap in Russia but the stores were empty of goods.

You must understand the concept of ‘eating the seed corn.” If you destroy or consume the means of producing goods all the money in the world means nothing.

Dick Fox August 29, 2008 at 4:06 pm

George,

Thanks for the article. Too often modern Austrians are more interested in discussing monetarism or anti-war ideas and totally ignore the core of what Mises was teaching us. The effect of taxes on economic prosperity is very important.

Brent August 29, 2008 at 6:31 pm

Dick,

But to be fair, Austrians focus on war because it is a prime destroyer of capital, both here through taxes, price controls, seizure of private property such as factories, inflation, and the draft, as well as abroad by literally destroying things and causing chaos.

fundamentalist August 30, 2008 at 8:06 am

Another great article by Dr. Reisman! I was happy to see that he hit on the stupid Republican supply side economics, too. As Dr. Reisman wrote, tax cuts don’t help a bit when the Feds have to borrow to make up for lost revenue. Roger Garrison writes in his “Time and Money” that the Feds were taking 30% of all US savings back in 2001. That percentage must be much higher now after 8 years of Republican stupidity.

David C August 30, 2008 at 11:47 pm

Actually, I have found that the people who want to tax the rich the most are … The Rich – like the Kennedy’s and the Buffets. That is because, in the USA at least, we generally tax income – not wealth.

Warren Buffet, with 100 billion in assets wouldn’t feel an income tax much even if it was 90% (1% profit on 100 billion taxed at 90 % would still leave 100 million left over), but his small start-up competitor who busted his chops to create 20 jobs and earn his first million would be ripped to shreads.

For these people, income taxes are a nifty way to eliminate competition.

michael September 1, 2008 at 8:49 am

Mr Reisman doesn’t believe that proceeds from oil sales spent on poor people alleviate poverty. But that has certainly been the case in Venezuela. Programs like public health and low- or no-cost higher edication have been trmendously effective in reducing poverty there. Such a redirection of profit explains the popularity Hugo Chavez enjoys.

We must keep in mind that the oil in the ground, after all, is the property of the state. It serves no good purpose to allow all the proceeds to follow the oil itself overseas. What Chavez has done has been to remind the developers that they are in partnership with the nation, and that any split of the proceeds must be arrived at equitably.

This has been the approach of Sarah Palin, regarding the State of Alaska’s oil. She, not Barack Obama, is our politician most like Hugo Chavez.

If we do not question the right of Alaska to own the oil beneath its state lands, it is up to the state to arrive at an equitable agreement with whoever they hire to develop the resource. And that is just what Palin has done.

In both cases, the owner can do whatever he wants to with his share of the profit. Chavez has plowed it into the welfare of the public. Palin is set to issue didivdend checks to each Alaskan citizen. It’s their money, they can do what they want with it.

Ryan September 2, 2008 at 1:00 pm

What you all fail to see, is that the average CEO in the 1950′s only had an income of about 40 times that of his lowest paid employees. Today that figure is somewhere around 400 times. Taxes on the rich serve other benefits than just economics based. It’s a redistribution of wealth. Lower and Middle class families spend a far higher percentage of their money on Consumer Goods (70% of the GDP) than their Super Wealthy Counterparts. It seems Un-American for someone to be able to afford to commit crimes, and hire persuasive lawyers to get them out of it. It seems Un-American for someone to be able to unilaterally influence politicians with their vast coffers. It seems Un-American for someone to be so rich as to personally afford a Mercenary Army like Black Water that quite literally gets away with Murder.
The purchasing power of the Super Rich today is quite unconstitutional. Some struggle to pay their bills with 2 jobs or overtime, and these fat cats complain about being over taxed? Why do they need more money? So they can find new ways to ship good paying jobs overseas? So they can cut pensions while boosting their own bonuses and stock options? Anyone that argues that Exxon Mobile, (The most profitable Corporation in the history of the United States), needs their tax breaks is out of their mind. As if they couldn’t invest in infrastructure by utilizing the vastness of their profits… Give me a break.

What’s funny is that you actually believe this BS. Wow… Give to the rich cause it’s better for the economy for them to buy another yacht, rather than for Average Joe to put little Jimmy to College to become an Engineer… Give me a break. I’ve got a bridge in Alaska to sell you if you believe that steaming pile you have written.

Curio September 2, 2008 at 6:47 pm

Mr. Fox,

Indeed I am not a regular here (yet), but am typically impressed with the teachings found on this site. Regardless, I am always on the hunt for objectiveness and balance and skeptical to a fault, naturally questioning even (what appear to be) sound judgments.

At any rate, your response sounded plausible from a theoretical perspective, i.e. “all other things being equal”. However, I find that in reality all other things are never equal or unchanged. In this case, it is assumed that all “rich” are producers and “not rich” are consumers. My point was that most producers are not “rich”, i.e. the top 2% income earners that are normally picked on by the tax-the-rich crowd. In fact, most large corporations do not even fall into that category when it comes to their effective tax rate.

The bottom line is that (under Obama’s plan) if the elite were taxed more than they are now, and the rest of us were given a break, the implications would be more positive for the economy than the reversal. The elite in question do not represent “all producers” or even most producers; however the “rest of us” do represent most consumers. By no means would this constitute consuming the means of producing goods. I believe the author of the article had a valid message to convey, but muddied it up by intermingling partisan politics as well as the fallacy of mixing (and cherry-picking) economic theory with reality.

Curio September 2, 2008 at 7:12 pm

The reality is that in the system we live in today, any policy that encourages a widening gap between the wealthy and the working classes is a recipe for disaster/revolution. The way our current tax system is set up, “producers” are not typically the ones being penalized under “tax the rich” policies. Indeed, a business simply passes the cost of taxes on to its customers, no?

Instead, it is people living off of large inheritances, high ranking CEOs, and superstars that are the targets. Not to say there is anything wrong with having a lot of income – some cases they earned it, others no, but it is what it is. They do not “owe” anyone anything, unless they themselves see it that way. Nevertheless the tax man is there. And when the tax man encourages the elite to have more, while the workers have less, this breeds social instability. True producers, i.e. manufacturers, research companies and other businesses/entrepreneurs, are who we should be talking about getting tax breaks, not the wealthiest income earners as mentioned above.

It doesn’t matter whether it’s theoretically right or wrong – when vast numbers of workers cannot afford health, shelter, food, education, etc. while the elite get wealthier, our society will inevitably become unstable. The federal government is the cause of all this mess, but unfortunately it will take the tools of the federal government to undo it. Any realistic solution must first slowly unwind the current disaster, rather than radically jumping to another course or, even worse, continuing the status quo.

Matt September 13, 2008 at 8:53 pm

Dr. Reisman is correct, basically I believe, he says that in order to have more goods that everyone desires, there has to be more production FIRST. In order to have more production there has to be more capital investment FIRST. However there cannot be capital investment if the seed corn is eaten or squandered. The poor have a habit of eating the seed corn. The not so poor have the habit of planting the seed corn but they had to save some of that seed corn FIRST. In economics, poor and rich are relative terms and can be debated endlessly.

Dr. Reisman also pointed to the fact that if Government lowers taxes without corresponding spending cuts and goes on a deficit spending binge, that is the same as squandering and eating the seed corn.
He allows for domestic and national defense spending, even here arguments can be made for a lot of waste of the seed corn.
Bottom line… government over-taxes and over-spends, then even the poorest will become poorer.
In addition the process of government regulation is so extensive that Fascism without a dictator is upon us.

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