Tuesday, September 20, 2011

The Moral Case Against Soaking the Rich

By Eamonn Butler

With their budgets in tatters, Western politicians want the rich to bail them out. In Britain, debate rages about the 50% top rate (before social taxes) on those earning above £150,000. America's President Barack Obama has proposed a new tax on families earning above $250,000. In the crisis-ridden euro zone, politicians are also eyeing up those with bulging wallets.

Taxing "the rich" is an easy sell. The task of rebuilding government finances, we are told, requires wealthier people to "pay a fair share" of the burden. But are high taxes really fair? Is this a moral campaign—or a deeply immoral one?

It is morally concerning that taxes are taken from us by force. Force is something we want less of, not more. Nearly everyone would happily support basic services like defense, infrastructure, even welfare. But, as the 19th-century French politician and author Frédéric Bastiat pointed out, as taxes rise, people come to see themselves not as willing social contributors but as victims of exploitation. Then it takes even greater force to make them pay.

America's Warren Buffett and Britain's Sir Stuart Rose say they should pay more taxes. Fine. Nobody is stopping them. But the higher tax rates rise, the more people are forced to pay for things they disapprove of—and for things like foreign wars, abortion or mixed-sex schools that they might find ethically repugnant. We should be very sure of our ground before we heap such moral distress on people in order to provide benefits to others.

And if the tax does not actually raise the promised money, the moral ground disappears completely. Spite and envy against the more fortunate are the least moral foundations for public policy, though regrettably the most common. Britain's respected Institute for Fiscal Studies reckons that the U.K.'s 50% top tax may well lose money for the Treasury. People simply resent paying so much.

Evidence from across the world is clear: take more than a third of people's earnings, and you unleash a silent tax revolt. Citizens rearrange their affairs in order to avoid the tax, or work less and retire early, or move their money or their businesses or even themselves abroad. They may even evade the tax by lying about their wealth and income, or taking payments in cash. And people abroad will be discouraged from investing in your country.

It is no wonder that low-tax countries grow much faster than high-tax ones. This growth-rate disparity is not just an economic problem, but a moral one. High taxes choke off business, employment and growth opportunities that would benefit the whole population. It cannot be "fair" to make everyone worse off.

Read the rest here.

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