"The power to tax is the power to destroy." - Daniel Webster
It was Supreme Court Justice Oliver Weldell Homes who argued that "taxes are the price we pay for civilization" and to some extent, most of us can agree. Most conservatives and advocates of limited government would argue that some level of taxation is necessary to maintain the core functions of government. But, in an era of huge budget deficits and stagnant economic growth, many public officials, including President Obama, tell us we should address our deficit problem "in a balanced way." Code words for higher taxes and promises of future spending cuts.
The President got Part One of his plan with the tax hikes on the "wealthiest few" in his standoff with GOP leadership over the fiscal cliff in December. But, as Speaker John Boehner revealed, the President does not think America has a spending problem. President Obama's direction for American became incredibly clear in his Inaugural speech on Monday in Washington, when he said "We reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future." In other words, the President has no intention of reforming our existing entitlement programs and believes we ought to spend more to "invest" in more government directed industries, education and whatever else his Administration can deem necessary.
And how does the President proposes we pay for these existing programs and new initiatives? Higher taxes of course. What President Obama does not tell us, however, is that current events are revealing how the "taxes yourself into prosperity" philosophy simply does not work. Take the recent comments of golfer Phil Mickelson and the actions of former French President Nicholas Sarkozy. Mickelson took heat over his comments that California's tax hike on upper income individuals (10.3% to 13.3%) in addition to federal tax increases may propel him to flee California, maybe even the United States. And, when a former President, like Sarkozy, is reported to be moving to London to escape France's new 75% tax on top income earners, the "soak the rich" crowd has remained silent.
And when the wealthiest few uproot for lower taxed states and countries, then who picks up the tab? The "99%." When President Obama said he would not raise taxes on those making less than $250,000, we should have asked him -- what do you mean by taxes? In fact, report after report shows that middle income Americans will pick of the tab for Obamacare. The Heritage Foundation reports 18 new taxes imposed by a bill called the "Affordable Care Act." So then what happens to the middle income folks for California, France and America when the rich are properly soaked and the government that's been built requires more revenue? Well, more taxes.
One does not have to be an economist to understand that taxes are a means of directing behavior and people are naturally inclined to avoid pain. This is of course the theory behind taxes on things like cigarettes, supported by the public health community, as an incentive to get people to quit smoking. There are countless ways to showcase how tax policy influences behavior; Mickelson and Sarkozy are prime examples.
But, Republicans should be careful in how they make their case, avoiding the argument that "it's their money they should keep it." While there's good reason that people who work hard, take risk and create value should be rewarded, this argument alone is not a sufficient and does not address real human needs. What is important to note is that by raising taxes on the wealthiest few you will get less of them -- they'll either physically move out of state or country, or shift their assets elsewhere.
You will also get less from them. When you have less people who are willing to risk capital, invest and innovate, there will be fewer jobs created (not counting government jobs) for middle class folks, raising families and building communities. And when the wealthiest few leave to protect their assets, their money is then taken out of the local economy -- much of which is supporting small businesses (restaurants, retail stores, car dealerships, etc.) And ultimately, the tax burden will fall of the backs of those who remain --the middle class, who do not have the luxury of mobility. This is already happening in France.
But, here's the good news. There are 30 Republican Governors in the United States who have been working to make their states debt free, lowering the tax and regulatory burdens and their economies are growing. Governor Rick Perry has already been recruiting Phil Mickelson to move to income tax free Texas. Louisiana is talking about scrapping their income and corporate taxes. Michigan is a right-to-work state.
The Obama model of tax, spend and then tax more will be placed up against the GOP state leadership model over the next two years. In 2014, we will get a better idea of whether Obama's re-election was about crafty messaging and superior GOTV effort or whether Americans have actually bought in to his real agenda.