Who Is Helping Who?

Walter Williams is a person whose objective views I find attractive.  Most are quite simply stated with an implied question, “What does that mean?”

On social justice:

“But let me offer you my definition of social justice: I keep what I earn and you keep what you earn. Do you disagree? Well then tell me how much of what I earn belongs to you – and why?”

Without a good answer, “social justice” will remain a marketing buzzword for the hucksters.

But let’s go a little further and see what the answer would look like if someone came up with a share to which they feel entitled and reasons for it.

In 2011 Professor Williams published a short piece entitled, Eat the Rich.  In it he points out the futility of taking from the rich to make the world “fair.”  The main points are these:

  • Tax all income over $250,000 per family at 100% – Pays for 141 days of government spending
  • Tax all Fortune 500 companies at 100% – pays for another 40 days.
  • Take away all of the accumulated wealth of anyone on the Forbes 400 list.  – Another 130 days or so.

311 days of the 365 in the year.  They will come for the rest of us soon after and next year for sure.

So what really happens when rates go up?

Regardless of the top tax rates, “Federal tax collections have been between 15 and 20 percent of the nation’s Gross Domestic Product every year since 1960.” 

What does that tell us?  People adjust.

The sad reality as Professor Williams points out is this:

“Differences in tax rates have a far greater impact on economic growth than federal revenues.”

That difference affects all of us.

If politicians believe that they can gain short term favour by demonizing the wealthy, they will do so, even though it cannot actually benefit the people.  Cynically they know there is negligible probability of anyone attributing the resulting economic slowdown to them, even if that someone could identify it.

Economist Arthur Laffer has pointed out many times, raising tax rates usually results in less money for the government.  So lower revenue for the government and slower growth in the economy.  Not exactly an obvious sound play.

Walter Williams points out the reason the expected win fails.

“So far as Congress’ ability to prey on the rich, we must keep in mind that rich people didn’t become rich by being stupid.”

Canadian economist William Watson points out that if money is the solution to poverty, it hardly makes sense to attack the source of the money – capitalism.

High tax rates will be desired only as long as there are enough people who are blindly driven by the failing idea of equality of outcome and who have no interest in the side effects.

Pay attention, please. We could do better with fewer of those policies.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Contact: don@moneyfyi.com  

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