Any reasonable reading of the scriptures as a whole makes it clear that the attitude of the prophets toward excessive taxation is one of hostility.
In 1 Samuel 8, we see that the Lord condemns even a 10 percent level of tax. In Mosiah 11:3, we see that the evil King Noah imposed a hateful 20 percent tax. And we read that a 50 percent tax rate imposed by the Lamanites turned the people into slaves (see Mosiah 19:15). In Matthew 17:24–27, we see that Jesus says that the people who don’t pay taxes are “free” and that tax collectors impose taxes on strangers rather than their own children. As I show in this post, King Benjamin, who does not impose taxes, is held up as a righteous king in direct contrast to evil King Noah, who imposes a 20 percent tax. In addition, as I point out in this post, excessive taxes encourages breaking the commandments against theft and against coveting.
In short, any fair read of the scriptures shows that excessive taxation is unjust. This is not disputable.
But what many people do not consider is that excessive taxation is also futile. The truly rich will always find ways to avoid paying taxes, and the middle class will end up bearing the burden.
Let’s look at the most recent example, Puerto Rico.
Puerto Rico passed a law in 2012 to encourage millionaires to move to the island. So far, more than 77 have applied. The law calls for a 0 percent tax rate on investment income and a 4 percent fee on corporate income.
How much to millionaires pay in the U.S.? The new 2013 rates raised federal rates to about 44 percent. If you add in state taxes, property taxes, sales taxes, car taxes, etc, most rich people pay more than 50 percent (the Lamanite rate) on their income. Short-term capital gains are taxed at this rate.
Now it is true that long-term capital gains and dividends are taxed at 20 percent or more (the King Noah rate). However, keep in mind that capital gains are paid on capital that you have already earned, which has already been taxed. Capital gains are double taxation, which is why many countries, including Belgium, Switzerland, the Netherlands, Austria, Hong Kong and New Zealand, have no capital gains taxes at all.
Investment adviser Peter Schiff is moving himself and his entire company to Puerto Rico this year. “We are all doubling our pay,” Schiff said on his radio show today. It is easy to see why this might be attractive.
Excessive taxation incentivizes this type of behavior. The higher the tax rate, the more incentive people have to find ways not to pay it. High tax rates are wonderful for tax attorneys and accountants, but not so wonderful for the rest of us.
It is worth pointing out that higher tax rates are causing a record number of people to renounce their U.S. citizenship. I personally know an executive who lives in Hong Kong who renounced his citizenship a few years ago. The tax rate in Hong Kong: 17 percent. His tax rate before he renounced his citizenship: 50 percent. So, if this executive makes $300k per year, he saves about $100k a year in taxes. Why wouldn’t he make changes to save that much money a year?
I should not need to do this, but let me spend a small amount of time addressing the canard you will hear from progressives: “tax rates were higher in the 1940s, 1950s and 1960s.” Yes, tax rates were higher for the extremely rich in the 1940s, 1950s and 1960s, but nobody paid the higher rates. Here is why: 1)everything was deductible, including all meals, office furniture, business trips, presents that you bought a “client,” yachts used for business, etc, etc. 2)Much more business was done in cash, so it was much, much, MUCH easier to hide your income. 3)People would routinely ask that part of their income be sent directly to Swiss bank accounts rather than paid to them. Ask any older rich businessperson who has been around for some time, and he or she will confirm that they would much rather have the tax regime of, say, 1960, than the tax regime of today. Simply put: people pay a much higher percentage of their taxes today than they ever did when tax rates were higher.
The people who cannot escape paying the higher taxes today are the regular schmoes like you and me. And over time, the need for more tax revenue is going to get worse and worse. Social Security and Medicare are on the edge of bankruptcy — higher taxes will be needed to keep them solvent. We seem incapable of cutting the federal budget significantly — higher taxes will become inevitable. And, worst of all, as more truly wealthy people move to Puerto Rico or someplace else to avoid paying taxes, the tax collectors will be left with fewer and fewer people to harass.
And, consider this: under President Obama, the number of working age people without a job has increased by almost 10 million. The labor force participation rate is at a low not seen since the 1970s. This means there are fewer and fewer actual working people to pay all of those taxes.
The scriptures make it clear excessive taxation is unjust. Reality makes it clear that excessive taxation is futile. But yet supposedly moral people continue to call for more taxes on the rich. Very sad indeed.
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