We are facing an across-the-board tax-hike assault from federal, state, and local sources. This, despite a precarious outlook of a return to long-term economic prosperity after an especially deep and painful recession.
Of course, tax hikes drain cash from the private-sector economy. In supply-side terms, they undermine incentives to work, invest, and take risks by reducing the after-tax take-home reward.
After-tax incentives could drop 15 percent or more over the next few years, lifting the top tax rates on ordinary income to 45 percent from 35 percent, and to 25 percent from 15 percent on capital gains. Why in the world would we want to tax those who are most likely to invest, save, and take risks in an economy that desperately needs all three?
And let’s be very clear regarding class-warfare attacks on so-called rich people: A tax on investment is a tax on jobs, wages, and productivity. Without investment and risk-taking, the capitalist machine cannot and will not function efficiently. As Jack Kemp used to say, “You can’t have capitalism without capital. You can’t love the employee and hate the employer.”
Worse, these taxes are designed to finance an ever-growing government-spending share of the economy — even though government spending is itself the greatest tax of all on private enterprise, as Milton Friedman taught us years ago.
Regrettably, states across the country are looking to tax almost anything that moves. Governors say they have to. (No, they don’t.) It’s a matter of priorities, political will, and economic vision. Do we want to let people keep more of what they earn and invest? Or do we want to grow government to record levels? That’s really the question.
As you know, I believe those economies that grow the most are the ones that spend and tax the least. History bears this out. This is why I fear that the United States is now going in the wrong direction. But political help may be on the way: A spate of Republican businessmen and women are running for high office. That could bring about a very positive turn of events. There’s also the tax-and-spending revolt — including the tea-party revolt — which could have a huge impact on the 2010 and 2012 elections.