A Tax-Based Attack on Capital and Labor
If higher taxes on capital cause the budding investor not to start a new firm, then the capital that would have been created won’t be created. If that happens, wages won’t be as high as they would have been. Thus a tax on wealth, which, as noted, is what the proposed Biden tax really is, will hurt workers as well as investors.
A tax on wealth, moreover, has another effect that makes productivity and wages lower than otherwise: it takes wealth away from people who are using it productively and gives it to the government. So even in the highly unlikely case that the tax doesn’t reduce the incentive to create capital, it will cause the amount of capital to be less than otherwise. Less capital, once again, means that productivity will be lower and real wages will be lower than if there had been more capital.
This is from David R. Henderson, “A Tax-Based Attack on Capital and Labor,” Defining Ideas, April 14, 2022.
In it, I deal with Jason Furman’s argument for the mislabelled billionaire tax. An excerpt from that section:
Finally, argues Furman, the current system narrows the tax base and, for the government to increase taxes, it would be better to have a broader base than higher tax rates on a narrow base. But notice his implicit assumption: that the federal government should increase taxes. What about cutting spending or even just cutting the rate of growth of spending? Furman seems allergic to such an idea. In “Furman, Summers, and Taxes” (Defining Ideas, May 1, 2019), I noted how hesitant Furman and his co-author Lawrence H. Summers are to propose any cuts in government spending. And, as I noted in “Who’s Afraid of Budget Deficit? I Am” (Defining Ideas, February 20, 2019), I pointed out that Furman and Summers “assume, for every single problem they address, that the solution is more spending.”
Read the whole thing.