Donna makes a very good point. High taxes depress the willingness to work and take risks. Not only do average people tend to do less work, often combined with an increase in income-producing activities not subject to tax, but wealthy people also change their behavior. In pre-Thatcher England, people often remarked on the very high number of Rolls-Royces on the roads in a supposedly egalitarian paradise. The explanation was that with the very high tax rates in place, wealthy people found it more sensible to spend their money on something that would be theirs to keep and enjoy than on investments in the nation’s declining industrial base. After all, if the investment was profitable, most of the gain went to the government, so why put your capital at risk?
All our high-tax, envy-mongering politicians studiously ignore the fact that high taxes have destructive long-run economic consequences. It’s like eating your seed corn.
