The Other McCain

Rich Benjamin hits all the predictable notes — e.g., the provision of “schools, roads, soldiers, embassies, air traffic control” as justifying high taxation — in a pro-tax screed in USA Today:

Looking at federal tax rates over time, or comparing America with its closest competitors, our federal income taxes cannot plausibly be called “too high.” . . .
Two global wars, a sour recession, millions of fellow citizens in economic turmoil: If ever there were a time Uncle Sam needed us to step up to the plate, it is now. The bare minimum that our common good requires is a civilian’s matching commitment to pay his fair share of taxes.
That’s why the Tea Party movement, with its churlish anti-government slogans and deadbeat timing, strikes me as so unpatriotic.

For Benjamin, it’s all about how taxes make him feel, or rather, how he feels about people who are less happy to pay taxes. Like all liberals, Benjamin cannot seem to grasp two important points about taxation:

• Taxes are not voluntary. If Benjamin wished to pay more taxes than he currently does, no one would stop him from doing so. His argument for high taxes, however, supports the compulsory collection of additional revenue from his fellow citizens. Why are Benjamin’s positive feelings about taxes more important than the negative feelings of those who wish to keep more of their own earnings?
• Taxes extract wealth from the private economy. Money that is collected by the government as tax revenue is money that is not available for investment in business. Progressive taxation, which imposes higher rates on the wealthy, thus has the long-term effect of causing disinvestment, removing capital from the economy.

You can’t make capitalism work without capital, and high taxes hinder the accumulation and efficient allocation of capital. Benjamin lays aside the usual liberal theme — demonizing the rich — just long enough to stigmatize as “churlish” those who advocate economic liberty. He highlights non-controversial uses of government revenue as a way of implying that those who complain about high taxes are opposed to such things. He is not engaged in economic argument, but in political sophistry.

ADDENDUM: Let me expand upon the economic argument by saying that it doesn’t matter how you feel about the rich, or how you feel about the poor, or how you feel about the government. What matters is how taxation impacts the functioning of the economy.

People like Benjamin who make emotional arguments about economics are guilty of ignoring the central importance of investment capital to economic prosperity.

Consider the scenario of two firms engaged in the same sort of business. The firms may be generally equal in terms of the expertise of management, the diligence of their employees, etc., but one firm has a capital investment of $100,000 and the other firm has a capital investment of $1,000,000. No one would dispute that, in such a scenario, the million-dollar firm has a competitive advantage over the hundred-thousand-dollar firm.

Now apply that logic to international economic competition: If government policy has the effect of discouraging investment in American business — and high taxation is discouraging in that regard — all Americans will suffer from the competitive disadvantages resulting from that policy.

One need only look at the example of blighted Detroit to see how a once-prosperous community can be destroyed by policies that discourage investment. We may presume that those who enacted the bad policies had no intention of destroying Detroit’s economy, but that was nonetheless the result.

If the United States pursues the high-taxation policies advocated by Rich Benjamin, his feelings will have nothing to do with the economic disaster that ensues.