Imagine enduring the coronavirus lockdowns without Amazon, Facebook, and Zoom. We couldn’t have continued to function. And many more hundreds of thousands of people would have died if we couldn’t find ways to isolate at home.
The very things that enabled us to get through the past year are the result of entrepreneurial activity by companies that opponents characterize as capitalistic bloodsuckers. The latest attack on these examples of successful innovation comes from Kara Swisher in the New York Times. Let’s tax all the rich people who made money last year, she argued. So, when we really need the things they’ve created, Swisher said we should take all their money.
We do need to pay for all that stimulus money — the big government we got as a result of the coronavirus. As good as it sounds, increasing taxes on the rich won’t do much good.
By the usual measurements, we’re already getting as much income tax out of the rich as we can. The Laffer Curve really does exist, and the usual paper waved at us by the Left said its peak is a rate of 54% for taxes upon income. That’s something similar to our present tax system and also, amazingly, about where the top marginal rate is. (Taxes upon income are different from income taxes, and we get where we are when we add social security, income tax, state taxes, Medicaid additions, and the rest.)
If the government can’t get more money from income, then what about changing the system to tax wealth? Tax theory says we should not tax investment and capital. They’re what make the future richer, and we get less of whatever we tax. Why would we want to make our children poorer than they could be in order to feed today’s bureaucracy?
The most important insight of economics is that incentives matter. Taxing people who invest reduces investment. This idea to tax Big Tech is going to reduce investment in the ideas that might help us in the face of the next disaster.
The one exception here is that a one-time wealth tax could work. Since it’s a one-off, it won’t stop people from investing in the future. We just get to confiscate the results of the past. That does, however, depend on us believing the tax folks when they say it will be a one-time deal. We do really believe what politicians tell us about taxes, right?
It’s possible that this is a bad taxation plan. We’ve got a lot of government spending that is nice but unnecessary. If we need more to spend on the necessities, let’s spend less on what’s “nice.” Above all, let’s not have a tax system that deliberately and spitefully punishes those who enabled us to get through the pandemic.
Tim Worstall (@worstall) is a contributor to the Washington Examiner‘s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at Continental Telegraph.
