When You Tax the Rich, You Kill the Poor

So, I felt my civil government pay cut (AKA higher Social Security taxes) again yesterday. Uncle Sam just reached into my pocket and pulled out another hundred dollar bill. And he’ll do it again in two weeks.

“Just one hundred dollars more in taxes? That’s not that much! Surely you could survive on less…” You’re right. I could. I’ll just stop eating out as much. (Too bad your daughter couldn’t find a job as a waitress…) I won’t buy as many gadgets. (Good thing your son got eyeball deep in student loans to acquire that engineering degree…) But my family will survive. You’re right about that.

I guess my biggest problem with higher taxes is that it doesn’t solve the problem. If I thought raising taxes would get my country out of debt sooner, then I would be willing to bite the bullet for the sake of our future. But, on the civil government side of things, the problem is simple. And the problem is certainly not low taxes. The civil government spends too much. Period. But instead of spending less, our elected officials have decided to tax us more.  But this won’t work. Higher tax percentages won’t even make a dent in our deficit.

In fact, sometimes the government raises less revenue when it raises taxes. How could this be? The answer is simple if you free your mind from Marxist concepts of wealth. Ask yourself a simple question: Can wealth be created? Most Marxists would say no. They would say wealth can be inherited, transferred, bestowed, distributed, etc. But not created. In fact, according to a Marxist, wealth is always parallel to material resources, so wealth is becoming more scarce.

Now, we may not want to be labeled Marxist, but we often think of wealth in Marxist terms. Yes, even us. If you work for a salary, that income is fixed no matter how much or how little work you do (providing you can convince your employer it’s worth it to keep paying you). If you get paid by the hour, there’s a limit to what you can make because you only have so many working hours in any given week.  So when we think of wealthy people, we assume they must make the majority of their wealth in a similar way. “They have fixed salaries too,” we think, “but their salaries are just bigger than ours.” So if you tax them at a higher percentage, you’ll raise more revenue and they’ll still survive. Not so.

The yearly income of a very wealthy person is usually not directly connected to a fixed salary. It’s usually connected to the profits he is able to accrue from various investments or businesses he has. Now we know that the wealthiest people in the country pay the vast majority of the taxes. We also know that they are taxed on a percentage basis. So, think about it. If you start raising the tax percentage on these people, you won’t raise more tax revenue unless their profits stay the same or go up.

Wealth can be created. Because it is not dependent on material resources. Do you think oil-rich countries gave two hoots about the black sludge oozing out in their deserts before internal combustion engines made oil profitable? No. And who knows what valuable things you have sitting right under your nose. Bill Gates and Steve Jobs made billions of dollars off of ideas. And those dollars made more dollars. And more jobs. And more opportunities. Whether a capital investment is succesful or not, someone always makes money off of it.  It’s risk-taking and entrepeneurship that creates wealth.

And when you raise taxes, you decrease the amount of risks a wealthy person is willing to take to expand his business or make new investments. So either his profits or the profits of the people he would have lost his money to are decreased substantially if he goes into survival mode. Surely he can survive on less. But what about the rest of us?! We need his wealth-creating ability to have jobs, goods, opportunities, etc. Which means that ever-increasing tax percentages return ever-decreasing amounts of wealth—to the civil government and to us. And again, the rich will survive. But we may not.

Solution: Don’t raise taxes. Get out of the way. Let business owners use their own money to create more money.

This just seems so obvious to me. Why take the most money from the only people who make money with their money? And give that money to whom? To people who produce nothing. And then eventually, even the diligent ant has nothing left to invest. Then what will the locust eat?