Chief Justice John Marshall said it all in one sentence: “The power to tax is the power to destroy.”
It is not the money that is taxed away that is destroyed. What is destroyed is the wealth that does not get produced in the first place, because high taxes make its production not worthwhile.
Those who are receptive to Senator Barack Obama’s plan to increase taxes on “the rich” seem not to understand that the issue is the nation’s loss of wealth. Today, wealth can leave the country when heavy taxes threaten it — instantly, in an age of electronic financial transfers — and create jobs and economic growth overseas, instead of at home.
The two months between the time of a presidential election and the time when the new president takes office is an eternity in terms of how much money can be transferred out of the country electronically before any new high-tax laws can be enacted.
Like so much that is said glibly by Barack Obama, raising taxes on “the rich” has serious — and potentially disastrous — implications for the whole country that have been ignored amid the political euphoria.
Moreover, like so much that is proposed under the magic mantra of “change,” it is something that has been tried before in many countries and failed before in many countries.
Much wealth from Third World countries flows out to richer countries like Switzerland or the United States, where it is safer from confiscation. Jack up the capital-gains tax rate in the U.S. and more Americans can be expected to send their capital elsewhere.
That means sending jobs elsewhere, so that even people with no capital to invest lose employment opportunities.
Economists have trouble determining how many people are affected by a tax increase because those affected extend far beyond those who write the checks to pay the government.
Taxes on businesses can get passed along to consumers, in whole or in part, even though it is only the business that writes the check to the government.
Payroll taxes or government-mandated employee benefits may be paid for directly by the employer, but these costs reduce the value of an employee to the employer. If these costs add up to $10,000, for example, employers bidding for labor may bid $10,000 less in salary than they would have otherwise.
As in other cases, who writes the checks does not tell you who really pays the costs, since the worker is now $10,000 worse off. The idea that you can single out one segment of society to be taxed or mandated, for the benefit of the rest of society, is reminiscent of a San Francisco automobile dealer’s sign: “We cheat the other guy and pass the savings on to you.”
The economy is not a zero-sum game where someone gains what others lose. The whole economy can lose when ill-considered policies gain political popularity and stifle economic growth.