Why Taxing the Rich Makes Us All Poor
“I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.” —Milton Friedman
Discrimination Is Wrong, Even on a Practical Level
Just because the rich can afford to pay higher taxes does not mean that the rest of us can afford for the rich to pay higher taxes. It is truer than most people know that, when you hurt even one rich person, you hurt all the rest of us at the same time. And the effect size only multiplies when the entire class of rich Americans is discriminated against—targeted, if you will, by government policy. Discrimination is always wrong. It always seems to backfire, no matter who the subject of that discrimination is. And discrimination is not only wrong on a moral level, but on a practical level as well.
Big Checks Enable Big Waste
Once the wealthy begin to write big checks out to the government, all of that money can no longer be used by the rest of us in the form of loans for our small businesses, for the bank’s investment purposes, or for other productive purposes that would enable healthy economic growth. The amount of potential job creation that all of this tax money represents is huge. As tax money, however, these funds would be directed to satisfy the purposes to which the government might apply them—many of which would prove to be incredibly wasteful or even downright destructive.
It’s All for One and One for All
Thus, a tax on one taxpayer—or a group of taxpayers—is, in a very real sense, a tax on all of us. For every single one of us loses the benefit of having that money put to work for the expansion of the US economy and the freedom this would ultimately bring.
Stimulating Stock Market Bubbles
With less money supply available to private banks, upward pressure is brought to bear on interest rates, since a lower supply of ready cash always pushes up the price of money, in terms of interest rates. This makes loans more costly and, thus, more difficult to afford. The only counterweight to this is an easy-money policy put into place by the Federal Reserve that keeps interest rates artificially low. But such a policy serves to drive the bank’s money into the stock market to earn what cannot be earned on loan interest. This provides a stimulus to the stock market and inflates stock values, ultimately causing a bubble and risking another crash when the bubble finally pops.
A Shrinking Economy Means Shrinking Freedom
Less capital in the private sector also means less economic activity to create wealth. The economy shrinks, which causes the amount of taxable income to decrease. Americans lose much in the way of freedom of choice in the kinds of jobs they can take. The job market suffers, and many jobs become outsourced to foreign lands.
Back-Door Tax Hikes
To counter some of these problems, the government has been printing more and more money, but this quantitative easing not only devalues the currency, it also serves as a backdoor tax hike. So, once your employer finally gets around to paying you more in order to compensate for inflation, you might be surprised to find yourself in a higher tax bracket than you were before.
More dollars earned means a higher percentage of your income has to be paid to the IRS in income tax, regardless of the fact that you need the higher dollar amount to purchase the same amount of goods the old wages used to buy. You are earning the same purchasing power, but you are also paying a higher percentage of your income to Uncle Sam.
One Job for the Price of Twenty-Five
Sometimes, the government also attempts stimulus spending by appropriating money for pet projects. The last stimulus bill required two million dollars to create each $80,000 job being funded. The amount of waste this implies is mind-boggling. What this means is that, in order to pay the two million dollars in taxes it took to create each $80,000-government job, the private sector had to forgo the creation of 25 jobs of equal wage value. How much productivity and innovation was lost to the US economy? How many useful new inventions and discoveries did not come about—some potentially life-saving in nature—because the people who would have made them were not working? And just how many lives may have been lost, as a result?
Tax Cuts to Increase Tax Collections
The best economic stimulus actually comes in the form of significant tax cuts. This allows consumers to spend more of their income at neighborhood businesses, allows hiring by those businesses of more workers, and causes the economy to begin expanding. A growing economy creates more taxpayers, more wealth to tax, and—even at the lower rates—would eventually cause more money to be paid into the treasury than before the tax cut.
An important by-product of healthy growth is a greater menu of jobs being created, offering Americans more in the way of choice and freedom. Due to the abundance of job choices that comes about in such an economy, employers must then begin raising wages in order to keep their best workers from going elsewhere. This increases wealth distribution without any need for government intervention.
Presidents Kennedy, Reagan, and Clinton all enacted significant reductions in taxes to boost American economic growth. Realizing that income-tax cuts under Kennedy worked towards expanding the economy, Reagan chose to make even more dramatic cuts, setting the wheels in motion for an economic boom that would last over a quarter of a century. (Read more about this here: https://eaglerising.com/8311/tax-cuts-best-way-stimulate-american-economy/.)
Every time in the history of our republic that we have cut taxes, economic growth has resulted, and today, because of the Reagan tax-cut stimulus and other pro-growth tax policies under Bill Clinton and George W. Bush, the US economy represents about 25% of the world economy, despite the damage wrought by the Great Recession and the high-tax, high-regulation policies of the Obama White House.
Taxing Success, Subsidizing Dependency
President Obama is the first US President to reject the importance of incentivizing economic expansion; instead, he has chosen to punish those who are successful in driving the expansion process that grows wealth—for themselves and for others as well. Stepped-up taxation of economic activity, per Obama’s policies, in order to subsidize and grow poverty, can only spell disaster for the economy.
There is a well-known economic rule: If you tax it (economic growth), you get less of it; if you subsidize it (government dependency), you get more of it. Upon reaching the point of having more money being paid in entitlements than the government can collect in taxes, the country becomes insolvent. In the end, we redistribute nothing more than poverty, illness, and death. Americans become less free, and, with less wealth to tax, the government becomes increasingly oppressive, confiscating more and more wealth, until any and all taxable assets flee the country. No capital remains that could be invested in new start-ups, new innovations, or new life-saving drugs or technologies.
Wealth Is the Basis for Independence and Well-Being
Government relief should not so generously dispensed that there is no incentive for able-bodied recipients to get back to work and the business of caring for themselves and each other once again. Rather than making all of us equally poor, our government should be in the business of creating equal opportunity for all, helping each of us to become as wealthy and financially independent as possible. More wealth means more lives saved.
An America Divided
Historically, America has not been a land divided along the lines of class, but a land which has striven not to discriminate against anyone, along any lines—be those race-, gender-, faith-, or income-related in nature. Wealthy people have been able to exist in America, unmolested by an overtaxing government or a covetous citizenry. The inspiration their success has provided has proven to be a tremendous benefit to all who have chosen to apply themselves to the goal of becoming successful, in any field of endeavor.
The American Dream
As long as the hard-earned wealth of the American people is respected, rather than exploited, business can grow, and the economy will thrive. The generation of as much wealth as possible for the greatest number of people possible should be the goal. Only low taxes and limited government can facilitate this. The American Dream involves the freedom to manage your own wealth, without its being confiscated by Big Government to be managed for you, without any input from you as to how.
Individual liberty rides to a large extent on the back of economic freedom. As long as an environment of free enterprise and wealth creation is nourished and protected, the American Dream will continue to live on.
The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by EagleRising.com