The Immorality of High Taxes

The top combined federal, state, and local marginal tax rate in NY will hit 57% if the House Democrats health care plan goes through. Even though the effective rate paid by such earners will be somewhat lower, when you add in property, state, and other taxes, the tax burden on high earners is going to increase substantially. Of course, we haven't even dealt with reducing the budget deficit yet.

Well, so what? Why not soak the rich? Besides the fact that it's bad economic policy--in the middle of a recession, we're raising taxes on the segment of the population that produces the most jobs--it's also immoral. Sam Gregg explains:

In his Wealth of Nations, Adam Smith said that taxes were necessary to enable governments to perform three essential functions. One was national defense. Another was public security and the administration of justice. The third was public infrastructure needs, though Smith envisaged that governments could contract much of this to private companies.

Today’s reality, however, is that taxes are raised for purposes that go far beyond these limits. Many politicians, for example, do not even bother to disguise the fact that they regard high taxes as a means for massive wealth-redistribution and financing social engineering. The fact that high taxes destroy incentives for entrepreneurs and businesses to create the wealth that gradually improves everyone’s material well-being — including the poor — appears to escape many politicians’ attention. Likewise high tax rates are often justified by the need to fund government-provided social services that families, charities, private associations, and churches are invariably much better at performing.

Then there are the negative moral effects of high tax rates.

First, high taxes undermine respect for property rights. If the state routinely takes, say, 40 percent of peoples’ incomes, then we should hardly be surprised that some individuals become rather casual in the way they treat others’ private property. Second, the existence of high taxes helps facilitate a culture in which some political parties basically tell people that, in return for their vote, they will effectively transfer large amounts of others’ property to them via taxation. That’s surely a mild form of corruption.

Third, high taxes create what might be called “occasions of sin.” When the state takes such large amounts of people’s income, is it any wonder many are tempted to minimize the law’s effects through tax avoidance or actually break the law through tax evasion?

Lastly, high taxes have a distorting effect on how we think about our investment decisions. They encourage people to put their money into schemes that reduce taxes rather than activities which create more wealth for everyone.

Back in the 1960s, John Chamberlain focused specifically on the morality of progressive taxation:

Time was when the progressive tax would not have been accepted as equitable even by a majority of the poor. Traditional equity required that taxes should be levied proportionately, not progressively. This was in accordance with the belief that’ a man’s property, or his income, was an index of deserving achievement, or of value contributed in the market place to society. True, some men inherited their property or incomes—but that was something to be handled or regulated under laws of inheritance. In any case the erosion of time could be counted on to take care of the inefficient use of inherited fortune—“shirtsleeves to shirt-sleeves in three generations” expressed the common wisdom in this matter of luck in the choice of one’s parents.
Under the proportional theory of tax equity, a rich man would pay more taxes than a poor man, naturally. But every dollar of assessed property value, or of income, or of spending, would be taxed in equal amount, at flat ‘percentage rates. Dollars would be treated equally, no matter who owned them, or spent them. Thus the citizens would be accorded the “equal protection of the laws”—and their “privileges and immunities” would be equal, as provided for in the United States Constitution. Any other way of treating taxation was regarded as discriminatory, or as putting penalties on ability, ambition, and success.
It was Marxian socialism—“From each according to his abilities, to each according to his needs”—which fathered the great attack on proportional tax equity: a “heavy graduated income tax” is a salient feature of the Communist Manifesto of 1848. But the Marxians would have made little headway if non-Marxian economists had not come unwittingly to their support with the theory that “it is not equal to treat unequals equally.” In cases of charity, this is undoubtedly true, but no comprehensive legal system can be reared on a rule which begins by regarding everybody as an exception.

Chamberlain also noted the effect on the political system:

It begins with the politics of “soak the rich.” Soon the definition of “rich” is expanded to include the middle classes. And it all ends with the exaltation of the bureaucrat, who is in charge of spending the spoils. Minorities are inevitably put at the mercy of majorities—and everybody is at the mercy of the politicos, who get first whack at the resources of the state.
Instead of fostering brotherhood, then, the progressive income tax introduces a psychology of depredation into society. Pressure groups everywhere go for their share of the spoils. The arid states want big dams-at the expense, not of willing investors, but of the common people who have chosen to stay in greener, though more densely populated, New Jersey and Connecticut. Everyone has his pet scheme for spending other people’s money, and empires grow in Washington as the politicos cater to the schemers. As money income is taxed away, there is a tremendous competition to get income in terms of social services (untaxed). The state is called upon to provide more money for schools, medical services, pensions, what-not. Producers, who have their own corporate income taxes to worry about, struggle for special tax write-offs; every different productive group, from agriculture to labor, wants exemptions. The result is an intense materialism which is rendered all the more ugly because it puts guns into the hands of any group which thinks it has a chance of transforming a minority into a majority by the mere offer of a trade in votes.

That last line of argument seems an apt prediction of what we'll see as Congress continues trying to fund Obama's social agenda.

Comments

[wph]

And we haven't even got to the Obama campaign proposal to "fix" Social Security by creating a "donut" SS tax system that would resume FICA contributions above a certain level.

To paraphase PJ O'Rourke, when government starts doing 50% of my laundry, they can take 50% of my income. No wait, I don't want to give Obama any ideas for creating a "laundry czar" to be headed by a 30 year old.

[Allan]

Let's just do away with the income tax and go back to the per-capita tax from the constitution (that is what it was, right?). I am not advocating the 3/5 stuff though.

[T. Shaw]

Gibbon in The Decline and Fall . . . wrote of Augustus, like all tyrants, reducing Romans to an equal level of poverty, dependence and desperation. The envious plebs, already degraded into drones fed on bread and circuses, watched with covert delight as patricians were destroyed by desultory murders and praetorian intimidations. They're doing to a 21st century version of it to Palin.

Why does Obama want to destroy the private sector? For the general welfare? No, As all tyrants, he wants total control over we the people.

He can take your money. He can take your life. He can't take your soul.

[save_the_rustbelt]

.....used to create the most jobs.

Now we have financial manipulation for the sake of enriching the financiers...only.

Not to justify higher taxes, but conservatives need to take off the blinders and take a serious look at failures in the market system.

[Cornellian]

I'm generally sympathetic to the post but can't help but note the irony of the poster being someone who lives on the public payroll. Also, if it is true, as Chamberlain says, that "some men inherited their property or incomes—but that was something to be handled or regulated under laws of inheritance" then one wonders why Republicans want to abolish the estate tax.

Finally, what is the solution to this overall problem in a democratic society where people with modest incomes will always vastly outnumber the wealthy? Complaining about it isn't going to change it.

[Anonopuss]

Should health care instead be funded the way the Iraq War was?

[wcz]

Chamberlain seems to be on to something, though I don't think majority rule is a particularly new concept. Some people only see the slippery slopes to socialism and communism as insidious secret plots of a small pool of elites and the media, but they never see these slippery slopes as an entirely predictable backlash from a downtrodden majority that watched decades of stagnant lower and middle class incomes compare maybe just a bit unfavorably to an outrageously wealthy upperclass. I mean really, regardless of the right or wrong of it, you all couldn't see this coming? We all laugh at the French Revolution and figure the idiots in the nobility should have seen what was coming a mile away. We actually figure the stupid French deserved it, and rightly so! Well, when you've been soaked for 57% of your income next year, that's Marie Antoinette you hear laughing in the background.

[JM]

STR, we didn't (don't) have a true market system in financial markets to see what the "failures" might be - there was/is too much government intervention.

[Chris]

I keep reading the title of this post as "The Immortality of High Taxes."

[Ethan Elkind]

If high taxes destroys wealth incentives, then why have some of the most economically productive decades of the US been during times of our highest taxes? Have you seen the tax rates in the 1950s and 1960s when growth was broad-based and well-distributed? Geez, could it be that taxes are only one of numerous factors that determine economic growth? You could cut taxes like crazy in Haiti, for example, and that place is unlikely to become a world economic power. Raise taxes in Israel, and my bet is that country stays wealthy. But I guess it's much better to rely on "morality" to justify opposition to high taxes than on actual facts.

[MasterThief]

Plus on the religious side of morality, as P.J. O'Rourke pointed out some years ago in Eat The Rich, it's kind of hard to square "soaking the rich" with the 10th Commandment - "You shall not covet your neighbor's house; you shall not covet your neighbor's wife, or his manservant, or his maidservant, or his ox, or his ass, or anything that is your neighbor's." (Exodus 20:17). As O'Rourke says, "think about how important to the well-being of the community this Commandment is. If you want a donkey, if you want a pot roast, if you want a cleaning lady, don't bitch about what the people across the street have. Go get your own."

Or as the much more serious Catechism of the Catholic Church notes:

2539. Envy is a capital sin. It refers to the sadness at the sight of another's goods and the immoderate desire to acquire them for oneself, [Or others, I would add...] even unjustly. When it wishes grave harm to a neighbor it is a mortal sin:
St. Augustine saw envy as "the diabolical sin." "From envy are born hatred, detraction, calumny, joy caused by the misfortune of a neighbor, and displeasure caused by his prosperity."

2540. Envy represents a form of sadness and therefore a refusal of charity; the baptized person should struggle against it by exercising good will. Envy often comes from pride; the baptized person should train himself to live in humility...

[DAve]

Just so we know where all the money's going:

http://www.chuckdevore.com/blog.asp?artid=94