Saturday, December 9, 2023

Politicians’ Taxes: “I Will Raise The Taxes On The Rich” Wins Only Elections, Not More Revenues

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Taxes started as a means to enable government to meet the expenses it incurred in maintaining army, police, judiciary; and public services like road, etc. When governments were constituted among men, nobody thought they would also redistribute incomes, as the concept itself was not there.

Enter the Leftists. They proclaimed that the world was not a perfect place, but can be made one, if government was in the hand of people with heart at the right place. To do so, they seized governments in many countries through violence and murders. Once in government, they did redistribute everything, first confiscating all private property, but soon discovered that all wealth has disappeared, and nobody is creating more wealth. The countries they had seized collapsed.

But Leftists in democracies took another route. They proclaimed that people may be allowed to own private property and means of production, but governments would ensure fair redistribution of incomes. Of course they did not say above in the same words, they instead talked of alleviating suffering, ensuring fulfillment of the minimum basic requirements of everybody, etc., through government programmes. And these government programmes were obviously to be funded out of tax revenues.

Electoral politics came handy. No human being ever says no to a freebie. Politicians started outbidding each other in promising freebies, and people started voting into power the politicians who promised more freebies than anybody else.

Once in power, to make good the promise, they start raising taxes to meet the bill of the freebies, but soon discover that with rising taxes, revenues actually fall. People simply stop earning more, move out, or at least move their businesses out. End result is spread of misery, not its alleviation.

This is the point Thomas Sowell makes in an article at, in the context of Hillary’s promise to raise the taxes on the rich :

“It is one of the many signs of the mindlessness of our times that all sorts of people declare that “the rich” are not paying their “fair share” in taxes, without telling us concretely what they mean by either “the rich” or “fair share.”

Whether in politics or in the media, words are increasingly used, not to convey facts or even allegations of facts, but simply to arouse emotions. Undefined words are a big handicap in logic, but they are a big plus in politics, where the goal is not clarity but victory — and the votes of gullible people count just as much as the votes of people who have common sense.

What a “fair share” of taxes means in practice is simply “more.” No matter how high the tax rate is on people with a given income, you can always raise the tax rate further by saying that they are still not paying their “fair share.”

Advocates of higher tax rates can get very specific when they want to. A recent article in the New York Times says that raising the tax rate on the top one percent of income earners to 40 percent would generate “about $157 billion” a year in additional tax revenue for the government.

This ignores mountains of evidence, going back for generations, showing that raising tax rates does not automatically mean raising tax revenues — and has often actually led to falling tax revenues. A fantasy expressed in numbers is still a fantasy.

When the state of Maryland raised its tax rate on people with incomes of a million dollars a year or more, the number of such people living in Maryland fell from nearly 8,000 to fewer than 6,000. Although it had been projected that the tax revenue collected from such people in Maryland would rise by $106 million, instead these revenues FELL by $257 million.

There was a similar reaction in Oregon and in Britain.

Rich people do not simply stand still to be sheared like sheep. They can either send their money somewhere else or they can leave themselves.

Currently, there are trillions of dollars of American money creating jobs overseas, in places where tax rates are lower. It is easy to transfer money electronically from country to country. But it is not nearly so easy for unemployed American workers to transfer themselves to where the jobs have been driven by high tax rates.

Conversely, there have been some reductions in high tax rates that brought in more tax revenues at the lower rates. This happened as far back as the Coolidge administration in the 1920s. It also happened in the Kennedy administration in the 1960s, the Reagan administration in the 1980s and most recently in the Bush 43 administration. There was a similar reaction in Iceland.”(from the article)

But politicians never get the point. They think of only the next election. They continue to promise more freebies, talking of forcing “the rich” to pay their fair share. Soon, they run out of tax revenues necessary to deliver freebies they had promised. They start borrowing. Debt piles up, and finally comes due. Country defaults and economy collapses. And Leftists discover that collectivising only incomes also doesn’t work, just as collectivising means of production doesn’t work. Collapse of economy is the endgame for a Welfare State, albeit slower than a full fledged Socialist State like USSR.

Leftists of course do not acknowledge that their policies have caused the collapse. They simply claim that the policies were not correctly implemented and start the experiment all over again as soon as the economy is put back on track.

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