Thursday, March 08, 2007

Please, Read Financial Publications and Websites Critically!

That includes this blog, of course.

This morning, in one publication I follow (the excellent Financial Times in this instance,) I saw the blurb on the front page: "How Long will markets be able to defy gravity?" in reference to Martin Wolf's column. Now, I ask you: Is it within the realm of possibility that an outright agenda is reflected there, or what? Mr. Wolf has recently written columns advocating greater progresivity of income taxes in the US (boo on that idea), more international cooperation to tax people in such a way as to preclude them fleeing to tax havens (boo on that also), and reconstruction of the welfare state in the USA (boo, pbbbbht, hiss on that) so, upon looking at a few columns, we see something more of the mindset of the author. Apparently another statist European, who views personal income as the rightful property of the great and wise state, if it only has the resolve to tax it away and do many great and fine things with it, like buy votes.

The problem is that taxation changes taxpayer behavior. They try to cope, lawfully, let's hope! If you tax dividends at a higher rate than capital gains, corporations will pay out less of their profits in dividends. If you raise the taxes on higher incomes, then people will go into the perilous woods of tax shelter forest, and the tax shelter wolves may get them. in other words people will invest to minimize taxes instead of growing their money. Bad situation. To borrow someone's wise illustration, (sorry, I don't have the citation), if Uncle Sam were to tax 100 percent of the money I make every Friday, I would not go in to work on Fridays. Would you? If he only taxes away fifteen percent of what I make on Mondays and Tuesdays, I will go in to the office on those days! If Wednesdays' earnings are taxed at twenty five percent, I will sigh, but hey, I need the money. On Thursdays the tax is thirty percent. I grumble. I probably still go in. I need the money. I would suggest that in Euroland they are taxing Fridays heavily so people are working the other days, and the economies have lower growth.

A cynical comment I once heard, and I do not have the attribution: The problem with popular democracy is that at some point the mob (rabble sounds so undemocratic) may discover that they can vote themselves the contents of the public treasury. Couple that with an attitude that what is yours can be taxed away from you and placed in the public treasury first, and Karl Marx himself would stand up and cheer.

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