Folly of taxing the rich
Soaking the rich might make some people feel good, but going after “the rich” impoverishes everyone. The French never learned that lesson from their 18th-century outburst of envy that created widespread shortages and famine, and three centuries later, they have traded the guillotine for income confiscation. France’s constitutional court last week approved the government taking 75 percent of the income of millionaires at the request of President Francois Hollande. Keeping his campaign promise will damage a fragile economy and hurt the poor most of all.
The wealthy knew this was coming, and the smart ones are gone. Actor Gerard Depardieu retreated to neighboring Belgium. French soccer clubs, whose players command big salaries, realize they can preserve three-quarters of their income simply by packing their bags and leaving to play for teams elsewhere.
There’s little sympathy for actors, athletes and other celebrities who will have to find new mansions and change the registrations of their Bentleys, but what the purveyors of envy refuse to acknowledge is the impact this policy will have on the little guy. Losing teams don’t attract fans. When star players flee, the attendance at sporting events will necessarily decline. That means less money for vendors of snacks and beer, and for the people who sell tickets.
The punishment won’t fall on the wealthy because they can readily move to more comfortable places, which the stadium cleanup men and women and parking-lot attendants can’t afford to do.
Punitive taxes don’t even generate much new revenue, as a National Bureau of Economic Research study, co-authored by Larry Kotlikoff, an economics professor at Boston University, demonstrates. Punitive taxes distort how resources are allocated, as more money and effort is invested in the pursuit of loopholes than in making and selling goods and services. In fact, the professors’ economic model demonstrates that eliminating the U.S. corporate tax would so dramatically increase U.S. personal income and sales tax revenues that the government would gain more revenue than it would by keeping the tax on business.
Mr. Kotlikoff and his co-authors calculate that eliminating the corporate-income tax would enable capital to grow so that wages of unskilled employees would rise by 12 percent, and those of skilled workers just a little more at 13 percent. In the not so long run, economic output would rise 8 percent. But facts don’t matter to those who cultivate raw and unthinking emotion.
In both Europe and the United States, the left despises capitalism and the good works of the free market. The idea of lowering corporate taxes is anathema. The left terrifies politicians whose first instinct is to pander to grumbling and cower on Election Day. That’s why the United States has one of the world’s least effective tax systems. German economists have created a formula to measure “tax attractiveness,” and they rank America at No. 94 of 100 countries, beating out such economic giants as Venezuela. The cause is the 39.1 percent American corporate-tax rate, the highest in the developed world.
Some companies have concluded that it’s time to move. The Italian automaker Fiat announced last week that it was completing its purchase of Chrysler and would move the once-iconic brand to the Netherlands, where taxes are reasonable. Other American icons are likely to follow until those ruled by their envy realize that the fruit of punitive taxes is not more revenue, but stagnation.