Taxes and death 101811

The old cliche is, “nothing is certain but death and taxes.”  As more and more nations face bankruptcy taxes focus on certain.  In one corner is redistribution of wealth and in the other corner taxation prevents growth.

These two positions probably date from the cave man era and in the millenniums since both positions have been tested.  The American income tax debates of 1913 stated that the, “Power to tax is the power to destroy.”  This slogan is well proven by feudal Europe, Lords taxed freemen and merchants into serfdom and the Dark Age.  Post war England taxed its industry and landowners into receivership and ended up owning much of private industry and holdings. The bureaucracy and incompetence ran them into the ground ending British positions in world markets and draining public coffers. The British even attempted to squeeze the last shilling from the once rich by taxing the dead.   In the United States the top tax bracket reached 94% (some sources state 96%) followed by disappearance of some great names, the rise of tax lawyers and masses of exemption legislation.

There are some lessons to be learned from redistribution school of finance.  The poor doesn’t profit, national deficits continue to rise, the middleclass become downward mobile and tax lawyers become more creative. Expropriative taxation does destroy.  Ultimately it destroys productivity; the financial structure and governments fall.

There is an axiom that governments will always miss-spend more than its income.  Here lies a problem governments have no income.  Every dime it spends is acquired directly or indirectly from its populace.  During periods of growth governments are lavish in their spending, inflating expectations.  During periods of readjustment high expectations are that central governments’ great wealth will fund continued lavishness.  Frightened politicians appease the mob by borrowing money against the future and spend more not less.  It is a great Ponzi scheme that eventually destroys governments.

Expropriation does not work.  Modern cultures need transportation, water systems, sewers etc. These must be paid for out of tax revenues, the crumbling infrastructure must also be maintained by tax revenue.  New needs must be met; can revenues also support popular nice to have agendas?   Every citizen should support needs by fair share taxation, but what is a fair share?  Tax none of the income of one and all the income of another is it fair?  Confiscation of all the billionaires’ income may make a short-term interest payment on national debt but won’t reduce that debt.  Then what about the the next payment?

Governments must determine what expenditures are necessities and cut the fat. What are realistic fair share taxes? Politicians must remove the public’s and their own rose colored glasses.  They must create a realistic budget and live within it, as does most households.  Leaders must become responsible, governments are not bottomless money buckets to be dipped into for electioneering.  The risk is revolution and national collapse.  The model is Eastern Europe, Africa and the Mid-East.