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Taxing the rich to give to the poorUnder pure capitalism, the more an individual works, the higher his potential earnings. Therefore, people are inclined to work harder. It's not easy to become an anesthesiologist, but you know if you can make it, you'd end up earning $300,000+ annually.
Under socialism/communism, everybody is equal. The only entity more equal than the people, is the government. No matter how hard you work under communism, you'd still have relatively the same opportunities as the next guy. Therefore, the tendency is to not work hard. Those who do work hard do so not for the financial rewards, but for the notoreity.
So, while capitalism spurs hard work and innovation, socialism actually kills innovation.
American capitalism is under fire from some, who say that wealth is concentrated in too few hands. Such people propose taxing the rich to give to the poor. This vision, while awaited by the poor, is shortsighted, since nobody likes it when the government seizes their income to give to the less affluent.
The principle of taking from the rich to give to the poor never asks why the poor is poor. Is the poor lazy? Perhaps the poor loves to play, at the time that the rich is burning the night oil.
Assuming the government rules that anybody who makes $300,000+ a year is rich, and therefore needs to be taxed heavily. What we'd find over time is that the proportion of the population that earns $300,000+ a year would drop dramatically. In that case, the government would have fewer and fewer "rich" $300,000+ earners to tax? What happens then, since the government relies on taxing the rich to fund the poor? Well, what happens is that the government would be forced to redefine what rich is. In other words, the rich which used to be $300,000+ earners, becomes $250,000+ earners, then $250,000+ becomes $150,000. The trend continues until there is no more "rich" people left to tax. By the time the government has succeeded in placing everybody on the same earnings scale, the system has at that point crossed from socialism to full blown communism.
How about taxing businesses more? Assuming a business makes $2 million a year in profits and the government decides to tax that business more to give to the "poor". Unless the tax hike is also accompanied by government price control, that business would simply raise the cost of its products. When the price of products rise, the same poor people that got a tax break from the government, now face a higher cost of living. The net effect of the government taxing businesses more, is that the prices of goods and services rise. Nobody gains in the long run.
Other actions the business could take to reduce its tax burden is to lay off workers. Again, the poor suffers under higher unemployment rates.
When a society maintains high taxes, people are apt to engage in activities that makes them escape paying taxes.
Think about the business tax climate in America. Ten states with the highest business tax rates, starting with the worst, are: NJ, NY, CA, OH, RI, MD, IA, VT, NE, MN. Ten states with the lowest business tax rates, starting with the lowest, are: WY, SD, NV, AK, FL, MT, TX, NH, OR, DE.
What we find is that businesses are migrating their operations from high tax states like NJ, NY, CA, to the lowest tax states like: NV, FL, TX.
This is conclusive prove that high taxes do not work. They simply force the tax payer to flee.
Now, with that understanding in mind, what happens if the US government institutes a high tax policy? Basically, a tax-the-rich-to-give-to-the-poor policy.
Since federal taxes are not local to any US state, higher business taxes would cause businesses to move to other countries with favorable business atmospheres. Beneficiaries would be countries such as Mexico, China, India, etc.
The United States has the second highest business tax rate in the world, following Japan. Even the Japanese have considered cutting their business taxes to make their economy more attractive to investmentors.
If the federal government decides to raise taxes on incomes $250,000 or more, our tax rates may soon surpass that of Japan. High tax rates such as that, would drive investors away, and stiffle the growth of our economy.
While lowering taxes for businesses may seem like corporate welfare, it actually attracts investors, and spurs more job creation. When the poor is working, the economy grows. On the other hand, high tax rates drive investors away, and jobs along with them. When the poor isn't working, everybody suffers, and the economy suffers.
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