Taxes and Economic Breakdown
If a nation wishes to become prosperous, it must be free. America is the prime example of a free country becoming the richest country in the world. Toward the beginning of the modern era the Netherlands freed itself from Spain, and became prosperous. But as Spain languished under the Inquisition, all the plundered gold of the Americas could not save her from decline. In ancient times the Roman Empire suffered economic decline because freedom was curtailed under the later emperors. We see examples in history, again and again: if freedom is compromised, prosperity will also be compromised.
But how do we understand the term freedom?
Freedom which brings prosperity to a nation is distinctive, and relates to concepts of individual rights – especially property rights. That is to say, the individual has the right to his own person and his own property. In the private sphere, he may enjoy the fruits of his own labor. It is unlawful, under a system of political freedom, for anyone to deprive a man of his property without due process of law. “In this sense,” wrote the economist Friedrich Hayek, “’freedom’ refers solely to a relation of men to other men, and the only infringement on it is coercion by men.”
Hayek also wrote that freedom stems from political policy. Such a policy, he wrote, “must … be to minimize coercion or its harmful effects, even if it cannot eliminate it completely.” It should be added that a nation’s political policy may depend on its circumstances. Countries suffering from despotism, corruption, or mass poverty are unlikely to develop a policy of freedom. Also, nations at war may dispense with liberty. More recently, the welfare state has become an excuse for annulling freedom.
In his book, The Constitution of Liberty, Friedrich Hayek wrote: “The difficulties which social insurance systems are facing everywhere … are the consequence of the fact that an apparatus designed for the relief of poverty has been turned into an instrument for the redistribution of income….” In other words, government takes money from people who are targeted as “wealthy,” and gives this money to people the government designates as “poor.” The problem with this arrangement, says Hayek, is that it “brings us nearer and nearer to a system under which people will have to be told by authority what to do.” Such systems inevitably grow, becoming increasingly coercive, eventually “controlling economic activity generally.”
The tendency of the government sphere to grow and the private sphere to shrink is readily observable in the United States today. Through this process private initiative is gradually destroyed, incentive is twisted, and the market pricing system irrationalized. As with all socialist states, the economy stagnates or is ruined by overall government control. Even the Chinese and Russians have learned to move away from this sort of thing – from experience. Sadly, the Americans have forgotten the wisdom of their own heritage. We now hear that it’s “unfair” that someone like presidential candidate Mitt Romney pays only 13 or 14 percent in taxes because his income is investment income (and not subject to progressive income tax). A working man making far less than Romney might easily pay a higher percentage of his income in taxes. So now we hear calls to tax investment income. Earlier this year President Obama proposed $1.4 trillion in taxes levied against “Americans at the top of the income scale.” But does anyone ask what the overall economic consequences of such taxation would be?
The government would use the money to become even larger, addicting the country to additional “programs.” These programs would grow and demand further revenue increases. Meanwhile, the goose that laid the golden egg would be cooked. Higher taxes on investment would demoralize investors and destroy the seed corn of the economy. All other factors being equal, everyone would be poorer and the country would be on a downward spiral.
Unfortunately, America is a country that increasingly believes that robbing from the rich is an acceptable expedient in financial hard times. Even if the country elects a new president this year, it will only prove to be a temporary reprieve. After all, both political parties are committed to the welfare state; and already that commitment is a prosperity-killer. Look at the national debt. Look at the number of businesses going under. There can be no economic recovery while the state continues to plunder the so-called “rich.” These same rich people invest their money, and that investment causes economic growth and creates jobs.
Our political system’s growing contempt for property rights must lead to the further breakdown of our economy. As with the decline and fall of the Roman Empire, the day will arrive when we can no longer afford to defend ourselves. In that event, a final act of assault and pillage could easily destroy our civilization altogether. If we are to avoid such a catastrophe, freedom must be our principle. A political policy of freedom must be upheld. As the Declaration of Independence says, “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness.”
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