TAXES TRIPLE WHAMMY Published in the Orange County Register February 28, 2013

TAXES TRIPLE WHAMMY

            Nothing is certain except death and taxes. Who can argue? However, while on the one hand death is absolute, taxes are not so much. In a democracy, so the theory goes, the people decide what amount of taxes is paid to government and by whom. Through the natural course of political events, the voting majority in mature democratic nations has arranged that the greater portion of taxes be paid by someone other than themselves. On the surface this appears to be the optimum circumstance for the bulk of the citizenry, however, the evidence suggests otherwise. High taxes harm both rich and poor alike--regardless of who pays.

            As recognized by the Founding Fathers, there are duties of the federal government that are essential to the well being and security of the nation. The founders also understood that these fundamental duties are limited—exceptionally limited. When the federal government over reaches its functional limits the resultant benefit to the nation’s citizens becomes suspect. And there is a point at which government’s actions become more self-serving than public serving--even harmful to the public good.                  

            High taxes harm the economy, decrease employment, and depress wages. The poor are among the most severely affected by this circumstance. Nearly all income and wealth are created by the private sector. The vitality of the private economy is determined by the application of capital and labor to productive activity. Hence, the private sector is restrained by the amount of taxes extracted from private individuals and businesses. Presently, the government appropriates over $5.0 trillion annually from the private sector. If left in private hands most of these funds would be reinvested into the private economy creating more jobs and boosting the demand for labor.

            Recently, Congress reached a compromise calling for raising taxes on those earning over $450,000. As always, this tax increase was defended as a means of gaining more tax revenue. However, this tactic can, and often does, result in lower rather than higher tax receipts. Counterintuitive as this may be, there is considerable economic research in support of this finding. As most famously depicted by the Laffer Curve, high taxes create incentives for upper income earners to take advantage of the myriad of legal tax loopholes created by Congress, or simply to work less. By their nature, tax loopholes redirect capital toward less productive activities, and the consequences of discouraging entrepreneurs to employ their energies are apparent. Thus, high taxes levied on the rich result in a double whammy of restraining the economy and lowering tax receipts.

            While much of government expenditures are widely viewed as socially desirable, few citizens are cognizant of the considerable negative consequences. Finite, scarce resources cannot be applied to social programs and to the private economy simultaneously. Ultimately, the operative tradeoff is between government spending and jobs--the latter functioning to grow the economy and the former to inhibit it.

            Finally, there is a moral question. Many view the new high taxes to be suitable Robin Hood-style retribution levied upon the greedy rich. But which is more morality abhorrent, private individuals realizing financial success via voluntary free enterprise, or the state confiscating private property for non-essential government spending and personal gain? Few recall that Robin Hood stole tax funds from the corrupt town sheriff and returned the money to the citizens from whom it was forcefully extracted.