Higher Taxes Don't Make Capitalism "Work Better"

Tyler Durden's picture

Submitted by James E Miller of Mises Canada,

“Would Capitalism Work Better With Higher Taxes?”

That’s the title of a new Globe and Mail editorial written by Doug Saunders. The question is innocent enough. The article treads lightly on the topic without ideological moralizing. The dilemma of how to make capitalism “work better” is a common trope in mainstream rags. Saunders wants to come off as a moderate thinker who’s just trying to do what’s best for everyone. I suspect there’s something more sinister behind his motives.=

Anyone who understands the basics of capitalism knows taxation acts as a hindrance. There is no question about this. Capitalism is the free trading of goods and services; taxation is the violent extortion of the gains of voluntary trade. Anything that gets in the way of the capitalist process necessarily hinders it.

In no possible way will higher taxes make capitalism “work better.” Those who claim otherwise are either one of two things: ignorant of what capitalism is, or insidiously plotting its demise. I suspect Mr. Saunders knows what he is doing. In his piece, he gives slight deference to the orthodox view that higher taxes create a disincentive to produce. He even cites the fact that the James Bond flick Moonraker was shot all over the globe, except for the place where the Ian Fleming story takes place: England. The producers did everything they could to avoid paying Britain’s top income-tax rate of 83%. Hardly anyone could blame them for taking such measures. Even the Beatles and the Rolling Stones departed their home country for places with a softer tax burden.

Saunders understands this but it affects him not. He is convinced data disproves the idea that people want to keep more of their own income. Like any good news columnist, he has an academic to back him up. Thomas Piketty, a French economist, has focused much of his latest work on diving into the historic trends of income inequality. He discovered that wide income inequality acts as a large deterrent to raising living standards. Saunders, being the susceptible stooge waiting for an excuse to flex his statism, now has a scholar to throw in everyone’s face. Of Piketty’s theory, he writes,

“normal market economies, if left to themselves, will always enter a dangerous spiral in which previously existing wealth will grow in value much faster than either wages or sales.”

For Piketty, in unfettered markets, the rate of return on capital putatively outraces worker income. This is bad because it necessarily puts the rich capital owners in a privileged position when compared to the lower classes. The buildup of “dead wealth” is acting as an anchor on economic growth since too much capital remains underutilized. Therefore, Piketty proposes a number of methods to jolt life back into the capitalist class by forcing them to put their assets to work. Saunders is all for this approach and says it’s “bound to become mainstream policy sooner or later.” The only problem is, this approach to economic micromanagement has been in use since the days of Keynes. There’s nothing novel about using government authority to rid the rich of their wealth.

The underlying basis for the Piketty view is the positively Keynesian idea that idle resources are somehow bad; that if machinery, factories, plant equipment, and other forms of capital are going unused, then people are losing the opportunity to work. Economist William H. Hutt destroyed this entire notion in his The Theory of Idle Resources, where he pointed out that unused capital is never really worthless. There is always the possibility for future use. As he wrote,

“[R]esources may, however, be held up for some more wanted employment in such a way that they are not actually idle. The process of investment in them, or of continuous receipt of ‘availability’ services is still present.”

The idea that sitting capital is somehow a benefit to the wealthy is asinine. Sitting, functionless capital doesn’t get a return. It must be put to work. If it appears to be out of use, there is a good reason for it. Either the owner sees no profit opportunities presently or has bigger plans waiting to be implemented.

Economic central planners tend to think they know how to best use other people’s property. Their goal is accounted for in aggregate terms rather than individual preference. They see resources as things that exist to employ others. The very concept of personal ownership screws up their plans; so they attack it in the name of curing unemployment.

In Piketty’s work, he does his best to come off as friendly towards markets and claims to be apprehensive about increasing the size of government. But even so, his worry over capital’s dominance is tainted with Marxist thinking. His solution to the wealthy becoming too powerful is, according to Saunders, “targeting inheritance and extremely high salaries with deterrent taxes.” He even claims that inheritance – that is passing down the fruits of your labor to your children – actually “contradicts the basic principles of capitalism.”

If handing down your own property to your loved ones contradicts capitalism, then so does profit-making in general. People don’t invest, produce, work, and risk their wealth to make sure the trains run on time for everyone. They do so for their own benefit. The same goes for inheritance; which by its nature is a long-view approach to accumulating wealth.

Holding capital does not exact significant harm on the lower rungs of society. On the contrary, it provides the very basis of elongated production methods that produce intricate goods. Without the capitalist, there are no funds to pay workers. The capitalist, as economist Richard Ebeling writes, “saves, forgoing consumption or other uses of his wealth, and those savings are the source of the workers’ wages during the production process.” Punishing someone who saves capital for a later date is a good way to guarantee the stagnation of rising living standards. It’s hard enough for producers and investors to foresee consumer wants; academics and pundits are necessarily in a worst position to decide.

So do higher taxes make capitalism better? The answer is unequivocally “no.” But that won’t stop statist apparatchiks like Doug Saunders from cherry-picking data and sources to make the case for higher taxes. There can be a number of reasons for low economic growth. Low taxation and capital-hoarding businessmen are never one of them.

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svayambhu108's picture

ERRATA: Highest tax 

SafelyGraze's picture

let's just say, for a moment, that taxes are 100% of everything you earn, everything you own, everything you sell

fine. you'll just be homeless. along with the rest of the population.

and that will teach the cruel taxers a lesson, because you have nothing left to tax.

but guess what.

there are still plenty of dungeons and machetes to go around.

so remember: pay your taxes!


Beam Me Up Scotty's picture

1.) The tax code is nothing more than a vote buying scheme.   I'll lower your taxes, and you will then vote for me.

2.) The tax code is nothing more than a device to keep the oligarchs in power.  Ever wonder why Uncle Warren Buffet only pays himself $100k/year in income?  Because he can get into a much lower bracket by paying capital gains taxes on his stock ownership.  Couples making $250k/year pay a much higher % of their incomes in taxes which keeps a lid on their upward mobility.  The .01% doesn't want any up and comers to get a cut of their power and wealth.

jbvtme's picture

"An unlimited power to tax involves, necessarily, a power to destroy." Daniel Webster

redpill's picture

It's not only the amount of tax but the type of tax.  We waste billions on compliance.   Instead we could have a single retail sales tax on new goods and services that would be far more efficient and less meddlesome.

TimmyB's picture

And thus lower and middle income earners will be taxed at a much higher rate and the super wealthy have their taxes cut to almost nothing. Buy food, clothes or other necessities with your earnings---pay taxes. Buy stocks bonds, or any other investments---pay no taxes.

That's so fucking retarded that next week I expect to see a Mises article telling me how great it would be.

Beam Me Up Scotty's picture

How about a flat tax then, that you can fill out on a postcard.  So simple even a monkey could do it.  We could save billions on compliance that way too.  I'm much more in favor of that, as opposed to a national sales tax.  Thats just another burden on business to collect it and remit it to .gov. 

TimmyB's picture

A graduated tax can also be filled out on a post card.. Taxes are complex because so many tax breaks have been purchased from congress.

Beam Me Up Scotty's picture

See my post above then:

The tax code is nothing more than a vote buying scheme.

TimmyB's picture

More accurately, relief from taxes and our criminal laws is a political campaign financing scheme. 

RiverRoad's picture

"The rich don't pay taxes; only the little people pay taxes."


Leona Helmsley  (who went to jail for saying that)

nyuszika45's picture

Not really FOR saying that... only after saying that and someone taking a serious look at her finances, namely the IRS. One could be forgiving for thinking that such a statement might cause raised eyebrows and closer reviews... but that wouldn't happen in a "free" country, right?

Stuck on Zero's picture

What a ridiculous diatribe.  Obviously if the taxes are low and the tax money well spent on promoting free markets there is no problem. A justice system,  fair laws, and protection from predation are essential to free markets and Capitalism does not mean free markets.  The United States government is just another capitalist enterprise on a global scale. 


roadlust's picture

Yeah, "Capitalism" doesn't exist in the abstract, as it's most ardant junior high school proponents want to believe.  

It exists in the context of an entity powerful and socially acceptable enough to encourage mass public participation in a whole variety of abstract laws, or at least enforce them enough to have things like "contracts, patents, interest, ownership, property boundaries," and on and on, be possible. 

In this country, the question should be, "What is good for the majority of people in a civilized democracy," not what is "good" for an abstact economic theory that cannot exist outside of the modern nation/state structures that most human have organized, and/or live in.

johnnymustardseed's picture

If you some how believe that the United States represents capitalism you are DELUSIONAL. This capitalism that rewards large primary dealer banks with a zero FED funds rate. Capitalism that required a 16 TRILLION DOLLAR bailout of the entire banking system. Free market capitalism that alows the manipulation of all vehicles of trade? High Frequency Trading does not represent capitalism. Tax cuts with new wars didn't work out. DON'T call what we have Capitalism.

TimmyB's picture

High frequency trading is the perfect representation of unregulated capitalism. Unregulated capitalism is little more than doing what ever the fuck you want to make money no matter how it affects anyone else.

Capitalism is also GM allowing people to die rather than changing an ignition switch, tobacco companies selling cancer and a whole host of other corporations killing people so they can make another cent per share in earnings.

Stop kidding yourself as to what capitalism really is.

Beam Me Up Scotty's picture

I disagree.  Capitalism would let GM die, if they made inferior products that people died in.  Instead we have a government bail out of a shit company and they STILL wouldn't fix the problem.

As far as tobacco companies go, I could care less.  Unless you are a complete and utter dipshit, you know cigarettes are bad for you.  If you choose to smoke them, then the health problems you get are your problem, not the tobacco company.  Unless a tobacco company exec is holding a gun to your head telling you to smoke these cigarettes, then your point is invalid.

I like red wine.  If I die a few years earlier in life because I drink too much of it, how is that your problem?  Butt out of my life.

TimmyB's picture

Capitalism doesn't do shit when companies make higher profits via selling unsafe and dangerous products.

Tobacco companies lied about their products for years.  They directed their advertising to children to get them hooked on the poison they were selling.  That's a prime example of capitalism. 

Ford let Pintos burn their owners to death to save less than 30 cents per car.  Another sterling example of unregulated capitalism.   Toyotas keep on accelerating and kill owners.  GM's financial problems had nothing to their decision to contine selling cars with faulty ignition switches. 

Making the most profit, no matter what, is all unregulated capitalism is about.  So what if people die as a result.  Before food safety regulations were enacted, spoiled and rotten food was sold to the puplic.  There are hundreds of other examples.  In fact, the whole reason government safety regulations were invented was that under unregulated capitalism people were dying at an alarming rate from dangerous products.  The Free Market God some here worship refused to fix the problem, so government had to act.  

Btw---if a person knowingly wishes to kill him or herself, then I don't give a shit.  But if you buy a product that you believe is safe, but the maker knows it's not, that's a problem unregulated capitalism isn't going to fix. 

N2OJoe's picture

So what about Fascism which we have in America today?

GMO crops engineered to produce poison to ward off pests, but cant be washed off, all with the FDA's blessing.

Vaccines containing Mercury, Aresnic, and various other heavy metals, all with the FDA's blessing

GM which wouldn't exist anymore without the governments blessing

TBTF&J Banks, HFT, and Dark Pools all with the blessing of the SEC

Congressional Exemption from insider trading laws with the blessing of... themselves.

The FED controlling every market in the world with our wonderful governments blessing

THAT is not Free Market Capitalism, it is some bastard Fascist/Socialist system with nothing more than the thinnest veil of capitalism which all but the most Cool-Aid drunken fanatics can see clearly through.

rwe2late's picture

Just asking:

 For "capitalists", is the question "what is good for me now?".

The ultimate capitaist good being measured in material accumulation and monetary profit. And with the seeking of such narrowly defined  self-interest one's social responsibility can theoretically end.

If others, including government, would only leave them alone, they could do whatever they want, free of consequences to any.

Thus they want to be "free" of government.

There is cognitive dissonance because they do not want government to leave others alone. They want their "rights" protected and the rights of others disregarded.

They must therefore illogically deny the role of government to any good of their status, and deny connecting the bad of capitalism to the bad status of others.

To do otherwise would mean foregoing their illusion of economic freedom (isolation) and imagined superiority,  and instead recognize their own political/economic/social dependencies and connections.

booboo's picture

For "capitalists", is the question "what is good for me now?".

For starters you don't get to define words or terms.

Everyone acts in their own self interest, you just want to do it with other peoples money and hire the fucking government to do it for you because most people are to big of a fucking pussy to stick a gun in their neighbors face and take it from them. That would be GM or you in case you are wondering.

"Capitalism" ask for volunteers.



booboo's picture

"In this country, the question should be, "What is good for the majority of people in a civilized democracy," not what is "good" for an abstact economic theory that cannot exist outside of the modern nation/state structures that most human have organized, and/or live in."

There you go again with that DemoCrazy shit, you wanted to change the USA from a constitutional republic to a democracy and you did, now you complain because it don't work and then blame capitalism not working under a system that it is not designed to work under so you blame capitalism. A Democracy will alway degrade to fascism.

What part of democracy is not cohersive?

If majority rules in a democracy why is every democracy ruled by the minority.

If I had to be ruled let me be ruled by a King and not part time appointed caretakers (the government) hell bent on extracting as much wealth as they can before they leave office.

Oh, and fuck your democracy.

Stuck on Zero's picture

It's all in the degree.  There are always happy mediums.  We're in an unhappy extreme at the moment.  I do have difficulty with "absolute" statements such as the Author makes.  There are no absolutes when it comes to humans, economics, and governance.  For example, his statement:

Capitalism is the free trading of goods and services

Completely false.  Capitalism is characterized by the constant effort to restrict free trade to gain an advantage.  That is why banker/Capitalists need go to the government to get laws passed that give them an unfair advantage.  Unions, cabals, trading blocs, corporations, patents, copyrights, etc. all exist to give one capitalist group control of markets.  I ask you this:

What good capitalist would not resort to any measures to take control of a market?


N2OJoe's picture

Getting laws passed to cement monopoly is the antithesis of Capitalism.

Fascism is where the government and big biz work together to monopolize industries and suppress the serfs.

doctor10's picture

Under the US Constitution and Bill of Rights, when enforced under  the Law, and not men, the USA for 200 years was the most fertile place in the world to sow capital.

Today, after licenses, regulation, insurance and taxation, and a debt degraded curency, capital is worthless in the USA today.

Any country, with a minimal debt-degraded currency, will have a minimum of license, regulatory, insurance and tax burden-as these are what leads to currency degradation as good money starts to leave under those circumstances.  Such a place is a better place to sow capital

nmewn's picture

The more you tax something, the less of something you get. The percentages of ones taxation are merely the difference between petty theft & grand larceny.

Harbanger's picture

Taxation is how they prevent upward mobility for the middle class in our 2-class system.  The well-connected rich or the poor get Gov money while paying shit in taxes.

nmewn's picture

Exactly right...that and inflation (the destruction of past, saved labor).

Its pretty funny really, the lesser & major Keynesians screaming "Dammit, you wage serfs aren't spending enough to keep us in the lifestyles we've become accustomed to! This is a social contract! This is a democracy!"

Well, actually no, assholes...not even close.

Babaloo's picture

So Prof. Laffer, let's just reduce taxes to zero and we'll have an infinite amount of everything.

I like where you're going with this.

nmewn's picture

lol...unless I misjudge your sarcasm, ok then, why not tax everyones income at 100% and lets see what is bought & sold freely to be taxed.

And if you do not agree that taxation is "legalized theft", you would have to agree that double taxation is robbery.

Debugas's picture

it all depends on how the collected taxes are spent later on


NoDebt's picture

I'd rather be in charge of how my money is spent.

N2OJoe's picture

Gotta love the random downvotes on comments such as these.

I have one: "I'd rather live than be murdered by my government."

Let the downvoting begin!

SmilinJoeFizzion's picture

Apparently raising taxes affects the climate for the better

toady's picture

While true, the article is irrelevant because we're not in a capitalist society. Taxes suck the life out of the middle class to enrich the .government, that turns around and enrichs the TBTF. 


billwilson's picture

Hmmm ... another POS article from Mises Canada. C'mon Tyler, this is getting really boring. 


reader2010's picture

"Capitalism is the free trading of goods and services;" 


If that's how you define capitalism,  then capitalism has been in existence since the discovery of agriculture some 15,000 years ago. 

scraping_by's picture

And before. The native American tribes had a system of barter that pretty much included the whole continent.

But it was mostly between tribes. In the tribe, things were a lot closer to a share-all socialism. Even today, the Giveaway is part of a lot of ceremonies.

N2OJoe's picture

Are you implying that it hasn't, reader2010?

Did rocks not exist before Humans applied a name to them?

teslaberry's picture






taxation can be very good for capitalism communism xism blahism or it can be BAD . taxation is a matter of someone TAKING THEIR POWER AND PUTTING IT INTO USE TO TAKE OTHER PEOPLE'S RESOURCES. 


that can be a good thing or a bad thing for the general people who A) pay the tax B) don't pay the tax C) both D) neither [ people who are no where near the taxation going on ]



the capitalism versus communishm bullshit is getting very old and tiring.     there are only collapsing systems and growing systems. the idea of a 'sustainable' beautiful system that hits a plateau and gets to hang out there for a while is complete bullshit. all systems are dynamic. the larger the system is , the more dynamic it is. stability being a mere illusion of dynamic changes averaging out to whatever the 'stability' itself looks like. 


shovelhead's picture

Well you have to admit that giving public money to protect billionaires has worked out exceedingly well for the billionaires.

drstrangelove73's picture

Anyone else notice the trumpeting of increasing federal government tax revenues this week for 2013?
Anyone notice how the real economy is in the crapper with record low growth and unemployment at this stage of a depression/ recession?
Anyone think the Obama media will discover this coincidence?
Me neither.
Higher taxes= lower growth.
Lower taxes= higher growth?
I lived through the Carter/Reagan years.this country desperately needs a rollback of stifling government regulation and an across the board tax cut for people who work.

Iam_Silverman's picture

"this country desperately needs a rollback of stifling government regulation and an across the board tax cut for people who work."

But, but, where will we get the money for Earned Income Credit payouts?  Think of the chirruns!  It's fo dem chirruns, ya know.

Save_America1st's picture

Fascist governments, crony corporations, and criminal banksters don't give a flying fuck about true free-market Capitalism.

"Competition is a sin, therefore you must destroy it." ~ John D. Rockefeller

"Give me control of a nation's currency, and I care not who makes the laws." ~ Meyer A. Rothschild


frank650's picture

Neither do the people who elect officials that enable cronyism.   

falak pema's picture

captialism is not a civilization meme : its like a catapult, a means.

A civilization meme defines the essence of what living in a social network means. One law, one basic governing principle and one methodology, aka a democratic, law abiding republic.

How the democratic process (methodology) works; the degree of local to federal laws and power strctures; the power sharing between the elected and the people; the degree of individual freedom compatible with the social contract; are all parameters that have to be agreed on by the social network, on a top down AND bottom up dialogue basis. Its a recurrent process that never ends. 

How does the capitalist catapult fit in with this? Its a means to achieve production and consumption being effcient; just that and nothing else.

As for wealth creation, that requires as prerequisite we define what  "wealth" means. It  is a notion that goes beyond just economic measurement; aka the monetarised wealth yardstick.

A greater measure of wealth is what people achieve as sense of satisfaction during their passage on Earth. And that is not just a question of means of production and consumption.

Its a much bigger issue. 

A capitalist system without a clear definition of what the social contract is, is  the US system today; right down to a T. 

I'd love to see people define an efficient  catapult for the headless chickens that we have become.

Oligarchy self-serving rule and utopian, anarchy dreaming fools. 

ThirdCoastSurfer's picture

Capitalism is the exchange of free and fair trade. Purists will argue against fair, but they are duplicitious. 

Fair then, is the penalty that the free hand imposes as punishment for violating the rules of fair. 

It is a wasteful and onerous penalty to be sure, just as a lack of fairness has polluted the oceans to the point that it's mercury content is harmful to the unborn. 

No pollution, no EPA, no banksters, no SEC, etc., etc., etc.

If you want capitalism unobstructed by taxation, learn to paly fair.