Higher Taxes On The Rich Hurt Society - Especially The Poor

A very bad idea is being floated around - in the USSA by Warren Buffet, and in the UK by Sir Stuart Rose - that the way out of the current economic crisis is to get the rich to pay more taxes. Since such an idea is bound to find acceptability in India, where the masses are poor, and the rich are considered fair game, I am devoting this post to shooting this horrible idea down.


First: The crisis in the West is because of government debt. That is, their The State is spending too much. The only solution is cutting State expenditure, not paying more taxes. The USSA should get out of its foreign wars - and Americans should tell Warren Buffet to go to hell.


Similarly, in the UK, and the PIGS of the Eurozone - the "Welfare State" policies of old have to go, and markets must be freed for citizens to make wealth for themselves. It is welfarism that lies at the core of the crisis in the Euro. Welfarism leads directly to a Big Spending State - and this spending is what needs to be cut. More and higher taxes will work in the opposite direction.


Classical liberals used the term "political economy" with good reason: first, their minimalist government, with very few tasks to perform, would cost very little in terms of taxes, and this was what "political economy" was all about; and second, their minimalist government would leave the citizenry maximally free, and maximum liberty was a cherished goal of their political science. It seems these ideas and ideals are all but lost in the West today. Here is a Daily Bell article on a column by Nouriel Roubini that says his ideas on solving the current crisis reveal him to be a "kind of radical Keynesian" and a "secret backer" of central banking and fiat money.


What about India? A Times of India editorial opposes higher taxation, but does not go far enough.


What we in India need to do is understand that welfarism of the kind chacha manmohan s gandhi has ushered in (on a grand scale) will be disastrous. We need to learn the lessons of classical liberal political economy outlined above for our own future: that is, very low taxation for a most minimal government with the least tasks to perform, such that Liberty is maximised. I have just written a post on how the poor of India need freedom, not education, nor welfare.


Taxing the rich even more hurts the poor, especially in poor countries like India, because only the rich can save and invest, and the poor need Capital for their incomes to grow. If the rich cannot save and invest, because of higher taxes, the poor will remain poor forever.


The Lesson: Big spending, high taxing, high borrowing governments are a curse. Classical liberal political economy got it right. Minimalist governments, low taxes and Liberty are the only antidote to these modern horrors.