Mises Institute of Scotland - Austrian Economics & the Liberty of Man

#1 RAISE THE TOP TAX BAND FROM 45P TO 50P

Item number 1 in the Commonweal big book of ideas is a strange and telling, even apologetic starting point; it is:

We raise the top rate of income tax (£150k and over) back to 50p, after being brought down to 45p under the last Tory-Lib Dem coalition government in 2013. A conservative estimate of an extra £20 million will be brought in from this.

Firstly we should note the government revenue generated by this measure is a meagre £20 Million – this equates to 1 penny per person per day for those resident in Scotland – or approximately 0.03% of the required revenues of an independent Scotland. An immediate question is therefore “Why bother?” The reasons must be due to concerns other than revenue

That is of course assuming tax revenues go up; they equally could go down for, as  Alan Manning of the Centre for Economic Performance, London School of Economics and Political Science noted in his paper on the top rate of income tax:

Reported taxable income falls as tax rates increase. So rises in the top tax rates bring in less government revenue than one would predict assuming taxable income does not respond. Indeed, tax revenue might even fall.

It should be emphasised that we know very little about many of the parameters needed to estimate the total revenue effects.

EA029 1

So why would Big Idea number #1 be such a pathetic and weak measure, which might yield little if any government revenue?

For the answer we turn to Frank Chodorov, he wrote what became an American classic arguing that the income tax, more than any other legislative change in American history, made it possible to violate individual rights, one of the founding principles. This work was called Income tax- The root of all evil.  In it he argues that income taxes are different from other forms of taxation because they deny the right of private property and presume government control over all things. This is available as a free download or bound volume from the The Mises Bookstore.

Income Tax_Chodorov_20140513_Cover

Two Mises daily articles examine the destructive power of taxation:

How The Power To Tax Destroys,  JUNE 29, 2005 Michael Rozeff

and

To Tax Is to Destroy, APRIL 28, 2011Fred Buzzeo

The later article discusses a landmark court decision:

The landmark Supreme Court decision McCulloch v. Maryland (1819) has had wide impact on the powers of the federal government. In fact, this decision, more than any other, is responsible for the incredible growth of federal authority throughout the years. Today, Washington has a tight grip on every aspect of our lives, and much of this federal intrusion is due to the “implied powers” doctrine that emanated from this court decision.

In the case, the clerk of the Bank of the United States, James McCulloch, brought action against the state of Maryland. In opposition to the national bank, Maryland had imposed a tax on the Bank of the United States — hoping to tax it out of existence. McCulloch took the position that such a tax was an unconstitutional interference with the activities of the federal government by a state — in this case Maryland. Therefore, McCulloch brought action to stop Maryland from taxing the national bank out of existence.

Pleading the case on behalf of McCulloch, the eminent jurist Daniel Webster argued that Maryland had no authority to tax the bank. The essence of his argument was quite simple: “An unlimited power to tax involves, necessarily, a power to destroy.”

The court agreed. Speaking for a unanimous court, Chief Justice John Marshall echoed Webster’s words. He wrote, “The power to tax implies the power to destroy. If the States may tax one instrument, may they not tax every other instrument…?

Ha so we see the reason that the Commonweal’s first and foremost idea is a financial non-starter but a political imperative. They aim to destroy those considered too wealthy, too gifted, too fortunate. The implication would appear to be that wealth redistribution will raise up those less fortunate.

Now we at Mises Scotland consider such behaviour to be ethically indefensible. We are not alone in this view

Thou shalt not steal

 Thou shalt not covet thy neighbour’s house, thou shalt not covet thy neighbour’s wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor any thing that is thy neighbour’s.

Exodus 20; 15 & 17 KJV

But putting aside for the moment the commandments of the Lord , as seems to be the fashion nowadays, and all other ethical concerns we can ask a further question, will such a taxation policy succeed in making the poor less poor in absolute terms?

Seeking clarity and simplicity on this matter, let us turn to Hazlitt’s classic Economics in One Lesson

The whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups. (p.17)

Taxes Discourage Production: “The government spenders create the very problem of unemployment that they profess to solve….the larger the percentage of the national income taken by taxes the greater the deterrent to private production and employment.(pp. 38-39)

In brief, the main problem we face today is not economic, but political. Sound economists are in substantial agreement concerning what ought to be done. Practically all government attempts to redistribute wealth and income tend to smother productive incentives and lead toward general impoverishment. (our emphasis)

Economics in One Lesson (1)

Ludwig von Mises in Economic Policy expanded upon the mechanism of impoverishment at play here:

Progressive taxation of income and profits means that precisely those parts of the income which people would have saved and invested are taxed away.

Economic Policy_Mises

And it is only by saving and investment, the true engines of growth, that the productivity of labour can be increased, and only with increasing productivity can we command a better standard of living.

So we can see that the Commonweal aim to increase government control over the individual and his or her property not caring that this will lead to both general impoverishment and loss of liberty,

Let us leave the closing comments to Henry Hazlitt

It is the proper sphere of government to create and enforce a framework of law that prohibits force and fraud. But it must refrain from specific economic interventions. Government‟s main economic function is to encourage and preserve a free market.

When Alexander the Great visited the philosopher Diogenes and asked whether he could do anything for him, Diogenes is said to have replied: “Yes, stand a little less between me and the sun.‟ It is what every citizen is entitled to ask of his government.

In our land of mist and rain, the Commonweal should have more sense that to block out the sun from industrious and ingenious Scots.

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Photo from @frenchscotjeff via @VisitScotland

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