8 December 2019
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Eamonn Butler
Director and co-founder of the Adam Smith Institute
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Part 7: The perverse incentives of taxes
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Tax eats into income – the rewards of work. It makes it less worthwhile for people to earn, save and accumulate the capital goods that will raise productivity and generate wealth for the whole community.

Taxes on these things have the economically and morally debilitating effect of promoting idleness and indebtedness – which may explain some of our present predicament.

There is a strong argument that people who create things should enjoy the fruits of their creativity. It is, after all, their labour and ingenuity that produces those fruits. People have a right to use their natural talents freely and without others impeding them, as taxation surely does. Tax stifles people’s creativity, which harms us all.

Inheritance taxes also discourage saving and capital accumulation. It is also at odds with our basic ethical programming – since the drive to provide for one’s friends and family, and in particular one’s children, is a strong human instinct. The tax hits families at the very worst time of their lives – after bereavement. It encourages people to rearrange their affairs to avoid it; with the unfortunate result that their assets are likely to produce less than they might, making them and their families worse off. Hardly a just tax.

Precisely because of these perverse effects on creativity and productivity, high-tax countries grow more slowly than low-tax countries. They export less and create fewer jobs. That is bad news for the millions of individuals whose prosperity is directly diminished. But not only that, they also harm anyone who depends on government and charitable support, because a less wealthy public has less to spend on such causes.

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Is taxation theft? Some people say so, but the term is loaded and therefore perhaps best avoided. Unlike theft, taxation is usually imposed only by the decision of a majority, after public debate, and for public rather than private purposes.

Nevertheless, if two strong people took money from a third by force and spent it on themselves, we would certainly call it theft. If 51 per cent take money by force from the other 49 per cent and spend it as they think fit, is there really such a big difference?

But such name-calling is hardly necessary. As we have seen in this series, high taxes are plainly not moral, or generous, or the hallmark of a humane society. On the contrary, they are coercive, they undermine personal morality and responsibility, they diminish prosperity and crowd out charity, they are divisive and inefficient, they reward power and discourage creativity and they turn both people and governments into cheats. The moral case against them, in other words, is quite strong enough.

 

Eamonn Butler is director of the Adam Smith Institute and has a PhD in Moral Philosophy from the University of St Andrews in Scotland.

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Don Fillebrown
June 5, 2012
Last I looked, the money I see is printed by the Government of the United States. You can use it to create wealth, but ultimately that money and the wealth created belongs equally to "We the People" who make up the backbone of the country and the economy. "We the People" created this government and the economy that resulted, and as you say "There is a strong argument that people who create things should enjoy the fruits of their creativity." Without taxes, the economy, military, society, and all the things that make up the fabric within which you derive your profits would collapse. Low taxes are just as immoral as high taxes. Bottom line is this: If corporations wont risk the half trillion in reserves they are sitting on to create jobs, then the government is required to take the money back and create the jobs themselves.
Trey Garrison
June 6, 2012
Don, I'm not really sure that you have your facts in order. The Federal Reserve, which is not a part of the US government, prints money. It is not on loan to private individuals or individuals acting in unison by way of a company or corporation. Wealth has to be created before it can be taxed and seized. Even if that were not the case, what you describe is drawing a blank moral and monetary check on every citizen. Corporations aren't "sitting on" trillions of dollars, and what they do have is by right theirs to invest as they see fit to profit their shareholders. Wealth is created by means of voluntary exchange, not government fiat. It belongs to those who create it, not "We the People." Taking into account these facts, what suggestions would you have for a better economic climate to encourage more economic (and thus job) growth?
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