Why Taxing the Rich Hurts the Rest of Us
In tonight’s State of the Union address, Pres. Obama called on Congress to raise taxes on the wealthy. He wants them to “pay their fair share.” Set aside the moral issues of redistributive taxes (it is a form of slavery to assert ownership over the value of someone else’s economic output - but that’s for another day), let’s look at the economics involved.
Taxing the rich reduces innovation, jobs and economic growth. How? Look at a company that started small and got big - Facebook.
When Facebook began it was just a couple people. But once it got going, that didn’t last long. They needed programmers. The programmers needed computers, desks, offices, and office supplies. The programmers’ computers had operating systems and development tools and databases. Facebook also needed servers, data centers, back up power sources, server racks and cooling systems.
Facebook could buy those things because rich people had the money to invest in a risky start up. Those things were available for Facebook to buy because other people previously invested in capital-intensive companies to make those things. Computers, software, desks, lamps, servers, data centers, office buildings, etc. don’t build themselves. They require allocation of existing capital.
When government raises taxes (on any group, but particularly the wealthy), it reduces the pool of money available to build computers, software, desks, and lamps, or to invest in new, innovative ideas like Facebook. That means goods that are never built, innovative companies that die for lack of investment and jobs that are never created.
Of course the rich have the money to pay higher taxes. But it’s the rest of us that pay the price.