Folly of tax­ing the rich

The Washington Times Weekly - - Editorials -

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.

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