Croesus, Statolatry and Confiscatory Taxation

Since the current subject at hand is Obama’s double down on taxes – saying 800 trillion before the election and 1.6 trillion after – lets chat a moment about taxes.

Ostensibly, the tax discussion is about raising “revenue” but in doing so, government intervenes in the affairs of the free market. Businesses define tax levies as a cost, and that is exactly what they are. They walk like a cost, quack like a cost and fly like one, too. When a business calculates the required return on investment, it considers all outflows of funds – one of which are taxes. It is the same for individuals, while we don’t call what individuals have left over income, we call it “take home pay” and anything that reduces that amount, whether it be a car repair bill, a utility bill or other cost, it is a cost to the individual.

There is a point where taxation can become “confiscatory” or a levy that is targeted at a particular class or group for purposes other than the value of the revenue it generates for the government. The Ludwig von Mises Institute, the home of the Austrian School of Economics, explains:

Today the main instrument of confiscatory interventionism is taxation. It does not matter whether the objective of estate and income taxation is the allegedly social motive of equalizing wealth and income or whether the primary motive is that of revenue. What alone counts is the resulting effect.

The average man looks at the problems involved with unveiled envy. Why should anybody be richer than he himself is? The lofty moralist conceals his resentment in philosophical disquisitions. He argues that a man who owns ten millions cannot be made happier by an increment of ninety millions more. Inversely, a man who owns a hundred millions does not feel any impairment of happiness if his wealth is reduced to a bare ten millions only. The same reasoning holds good for excessive incomes.

To judge in this way means to judge from an individualistic point of view. The yardstick applied is the supposed sentiments of individuals. Yet the problems involved are social problems; they must be appraised with regard to their social consequences. What matters is neither the happiness of any Croesus [in Greek and Persian cultures the name of Croesus became a synonym for a wealthy man – Ed.] nor his personal merits or demerits; it is society and the productivity of human effort.

A law that prohibits any individual from accumulating more than ten millions or from making more than one million a year restricts the activities of precisely those entrepreneurs who are most successful in filling the wants of consumers. If such a law had been enacted in the United States fifty years ago, many who are multimillionaires today would live in more modest circumstances. But all those new branches of industry which supply the masses with articles unheard of before would operate, if at all, on a much smaller scale, and their products would be beyond the reach of the common man. It is manifestly contrary to the interest of the consumers to prevent the most efficient entrepreneurs from expanding the sphere of their activities up to the limit to which the public approves of their conduct of business by buying their products. Here again the issue is who should by supreme, the consumers or the government? In the unhampered market the behavior of consumers, their buying or abstention from buying, ultimately determines each individual’s income and wealth. Should one vest in the government the power to overrule the consumers’ choices?

The incorrigible statolatrist objects [Statolatry is an ideology that combines idolatry with the state, essentially placing total faith in the state to the point of worship – Ed.]. In his opinion what motivates the activities of the great entrepreneur is not the lust for wealth, but the lust for power. Such a “royal merchant” would not restrict his activities if he had to deliver all the surplus earned to the tax collector. His lust for power cannot be weakened by any considerations of mere moneymaking. Let us, for the sake of argument, accept this psychology. But on what else is the power of a businessman founded than on his wealth? How would Rockefeller and Ford have been in a position to acquire “power” if they had been prevented from acquiring wealth? After all, those statolatrists are on comparatively better grounds who want to prohibit the accumulation of wealth precisely because it gives a man economic power. [1]

Taxes are necessary. But the system of discriminatory taxation universally accepted under the misleading name of progressive taxation of income and inheritance is not a mode of taxation. It is rather a mode of disguised expropriation of the successful capitalists and entrepreneurs. Whatever the governments’ satellites may advance in its favor, it is incompatible with the preservation of the market economy. It can at best be considered a means of bringing about socialism. Looking backward on the evolution of income tax rates from the beginning of the Federal income tax in 1913 until the present day, one can hardly believe that the tax will not soon absorb 100 per cent of all the surplus above the average height of the common man’s wages.

So taxes are necessary but on what basis does a president or his administration decide that 30%, 33%, 36% – or more – is a morally justifiable amount? One of the impossibilities of modern politics is to have a liberal quote a number as what they think is the proper amount to tax (in truth, that level is “until the last cent” is out of private hands).

Perhaps the key is not the amount, but the true reason for the levy:

Economics is not concerned with the spurious metaphysical doctrines advanced in favor of tax progression, but with its repercussions on the operation of the market economy. The interventionist authors and politicians look at the problems involved from the angle of their arbitrary notions of what is “socially desirable.” As they see it, “the purpose of taxation is never to raise money,” since the government “can raise all the money it needs by printing it.” The true purpose of taxation is “to leave less in the hands of the taxpayer.[2]

Good point – as we have seen the government do during QE’s 1,2,3…and so on. When they need more money, the Treasury buys its own bonds and Zimbabwe Ben just fires up the printing presses and orders more drums of green ink.

Given that fact, one that we have been witness to for the last four years, a good question is why have taxes at all if they are so comfortable doing just that?

Because it is not about that with this administration. This administration is part of the Willie Sutton “progressives” who want to confiscate wealth from “the rich” simply because they have it.

Professor Glenn Reynolds of Instapundit and the University of Tennessee School of Law quotes the 80’s rock band, The Rainmakers:

They’ll turn us all into beggars ’cause they’re easier to please.

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