Many Americans have been conditioned to believe that when taxes are reduced, the rich (who pay the most) gain at the expense of the rest of society. They view economic activity as a zero-sum game where the gains of some must be offset by losses for others. That view is false, but it serves the interests of statists to promote it, since it calls for government power to promote “fairness.”
In this AIER article, economics professor Donald Boudreaux shows how completely mistaken this line of thinking is.
He writes, “Progressives and other opponents of tax cuts also believe that whatever benefits reduced rates of taxation might have for the economy as a whole come mainly from the greater spending that tax cuts encourage the rich and successful to do. Some of this spending, it is believed, might ‘trickle down’ to ordinary workers and families, but these gains to the masses are (the progressive tale concludes) tiny in comparison both to the huge gains of the rich and to the damage inflicted on the public treasury.”
Yup. The image that the big-government types want Americans to have is that tax cuts might lead to some trickling down of wealth to the poor, but that if government keeps the money and spends it, that creates a gusher of wealth for the poor.
What’s wrong with that bit of mind manipulation?
Boudreaux continues, “A chief culprit here is a commonly used descriptor of the free market: ‘private-enterprise system.’ The free market is private only in the sense that decisions of what and how to produce are made by individuals spending their own resources rather than by government officials spending other people’s resources. But in a free market any entrepreneur or investor who produces and invests only to directly satisfy his or her own private desires – any entrepreneur or investor who disregards the desires of the public – will not long survive as an entrepreneur or investor.”
Investors create wealth and progress, and it doesn’t just “trickle down” to the rest of society. The rest of society benefits enormously — and without taking any of the risk.
Resources are scarce, and the more the government takes them for its purposes (which are not productive or innovative, but often wasteful or even destructive), the less will be left for the market sector. That is why low-tax nations have always made rapid progress while high-tax ones languish.