Just Say NO To More Taxes

by Dual Income No Kids on February 23, 2009 · 0 comments

Hi All,

This was missed in the headlines last week, but the White house’s proposal for the next budget year contains a round of tax increases on business and high net worth individuals. Here is an excerpt from the Washington Post write up.

Obama also seeks to increase tax collections, mainly by making good on his promise to eliminate some of the temporary tax cuts enacted in 2001 and 2003. While the budget would keep the breaks that benefit middle-income families, it would eliminate them for wealthy taxpayers, defined as families earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule in 2011. That means the top tax rate would rise from 35 percent to 39.6 percent, the tax on capital gains would jump to 20 percent from 15 percent for wealthy filers and the tax on estates worth more than $3.5 million would be maintained at the current rate of 45 percent” (here).

I always feel a twinge of sadness when I hear these sorts of proposals. As nation we give up a lot when we increase our levels of taxation.

1) High taxation hamstrings the processes of new wealth creation: Like it or not, wealth is often created by bringing efficiencies into a given economy or by providing valuable services. When taxes are high it makes it harder for the private sector to provide these services, and therefore its harder for any one individual to build wealth. Wealthy individuals are not motivated to create jobs and take on new ventures when they are not able to keep a majority of the wealth they create.

2) Private wealth drives innovation and exploration. Many great works of human achievement have been funded by private investment. Some great examples of this are the early polar expeditions, the discovery and implementation of early electrical innovations like alternating current and 1950s consumer goods such as microwave ovens. More recently nongovernmental funding is driving the first commercial space travel and some of the really successful fully electric cars. Taxation makes this processes that much more difficult.

3) Taxation means less philanthropy. A tremendous amount of social good has been achieved from philanthropy. Great examples of this are the hundreds libraries, universities, museums and and hospitals funded by Andrew Carnegie. Currently, estimates are that philanthropic organizations provide a net benefit to the tune of $12 billion dollars annually to American society. Taxation increases the overall cost to society by decreasing the number of available philanthropic dollars.

But wait, don’t we need taxes to perform needed services? Sure, things like roads, schooling, police, fire and defense are all important core government functions. These need to be funded. Thus, we’ve got to have some level of taxation. However, our government is currently spending far more than it takes in. Since reducing spending seems politically difficult, I find it a bit depressing that we’re resorting to increased taxation to make up the difference. In the long run, we sacrifice a great deal by doing so, much of which we won’t even realize until far later.

Best,

James

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