Part of the presidential campaign rhetoric this election season has been taxing the rich because the United States federal government needs to invest even more money in education, tackle the trillion-dollar-plus budget deficit and make the affluent in society pay their fair share.
It’s a noble goal and it seems the bureaucrats, public officials and liberals in the country believe stealing the wealth from productive members of society will solve the nation’s debt problems and improve various social programs, including welfare, education and health care. Again, it can be a commendable initiative, but as Milton Friedman said in the book “Free to Choose,” the path to hell is paved with good intentions.
Looking at the fiscal state of the U.S., it’s interesting that the notion of taking more money from millionaires and billionaires and transfer it over to the least productive entity of society that is known as government, which has no money of its own, would balance the budget, lower the $16 trillion national debt, make the children smarter and give everyone 100 percent free health care coverage.
In fact, if the Internal Revenue Service (IRS) taxed 100 percent of incomes from the wealthy, it would only fund the federal government for an additional 90 days – the numbers say it would generate only approximately $616 billion.
Another factor is that the savings rate in the U.S. and Canada is quite low. Wall Street Journal reported in spring that the U.S. savings rate is at 3.4 percent and in Canada it’s 2.9 percent. We’re earning more, but spending the extra funds and saving less. Therefore, there are less individuals investing into the economy and since the affluent make up for the investments, taxing them will equate an erosion of capital in the city, state and country.
Of course, there are a lot more unintended consequences of taxing the rich that would trickle down to the middle-class, such as severe job losses, less investment in the local economies and charities shutting down due to lack of (voluntary) contributions.
There have been many states that have attempted to perform these measures. Connecticut tried it last year, but it ended up with even less revenues. Meanwhile, the state of Maryland instituted similar legislation and it lost $257 million because many of the rich residents packed up and left.
California Governor Jerry Brown is calling for a sales tax increase and an income tax hike of between 10.3 percent and 13.3 percent on those earning between $250,000 and $1 million in order to raise approximately $6 billion – Proposition 38 even raises taxes on the rest of California residents making at least $7,316 annually.
What is happening? A Manhattan Institute report found that there is a huge exodus occurring in California and many are migrating to Oregon and other southern and western states. In the last 20 years, it has lost more residents than it is taking in.
Overseas, in France, President Francois Hollande proposed a 75 percent super-tax on those earning more than one million euros ($1.28 million). The country is already facing turmoil as recent reports suggest that the largest corporations and its millionaires are looking to move to Great Britain, Belgium and elsewhere around Europe that have lower tax rates.
These are just only a fraction of instances that show milking the rich for everything they have is a catastrophic policy brought to you by the uninitiated of economics (at least Chicago or Austrian Economics that is).
There is plenty of evidence that shows taxing the rich fails on all levels. But as Yahoo! Finance’s Stacy Curtin asked, “Do wealthy have moral obligation to pay higher taxes?” Well, do they? No. Asking the question implies that you owe the government something and that it creates wealth on its own. Essentially, it’s similar to iterating the president’s now famous “you didn’t build that” line.
You, me, Joe down the street, Bill Gates over in the west coast and your boss are not indebted to the government – it’s actually quite the opposite because the government is indebted to the taxpayers and should act as the servant rather than the master. Although it seems as if Occupy would like to become serfs of the federal government by having endless taxation, there are many who do not want to pay half of their income to further the corruption, scandals and waste at the epicenter of Washington politics.
Remember, every new tax that is implemented is meant to be minimal and temporary. However, it becomes permanent and is raised each time a politician needs some extra funds to help pay for something the government deems absolutely necessary.
When the government runs out of other people’s money, one option is to borrow. When it can no longer borrow, its last option is to inflate. When it can no longer tax, inflate and borrow, the empire crumbles into a state of oblivion and obscurity.