Increase Taxes?

The socialists among us promise higher taxes to finance their Deals and wealth leveling schemes. Suppose higher taxes were possible, not saying that they are possible, because they require economic and political conditions to be present that may not be there. But suppose they are enacted, whether by higher rates or other methods of confiscating wealth and income. What will be the effects?

For that analysis, done to a tee, read this article by Hans-Hermann Hoppe.

Higher taxes shift goods from productive uses to consumption. Higher taxation “…reduces the present incentive for future production of valuable assets,” and “…raises the effective rate of time preference, i.e., the rate of originary interest and, accordingly, leads to a shortening of the period of production and provision and so exerts an inexorable influence of pushing mankind into the direction of an existence of living from hand to mouth. Just increase taxation enough, and you will have mankind reduced to the level of barbaric animal beasts.”

If the U.S. government increases its tax take, interest rates will rise. The government’s cost of servicing its huge debt will rise, and so will everyone else’s. The depressing effects will not be offset by the government spending, since that will be used up in once-and-for-all consumption, while the production loss will be permanent. The price level will also rise due to the higher consumption and the loss of supply coming from production.

Higher taxes will greatly harm the poorer people that the socialists claim to be helping. If government gave the poor every penny it extracted, they could have a party for a limited period of time, after which they’d starve because producers had closed up shop. Only if the poor became a new set of producers might this situation be averted. How likely is it that people who were not producing enough to become wealthy suddenly become profitable producers? What happens to the knowledge and skills of the wealth-producing companies, the top ones being very large, when their capital is used up and not replaced? The party ends. That’s Hoppe’s message.

In increased taxation, the socialists have no solution to the social ills they identify and want to fix; nor will they find answers in any number of their other schemes such as price controls, green new deals, government banks, doing away with banks, collective or citizen ownership of production, single-payer health care, planned economies, democratization, humanization, worker ownership of companies, equalization of opportunity, solidarity, central planning, participatory planning, decentralized planning, zero interest rates, etc.

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1:12 pm on January 22, 2019