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Obama: Voters tired of Wright issue

Dangerous delusions

By Richard W. Rahn
May 1, 2008

Have you ever wondered why so many people see higher taxes and more government as the solution to every problem, despite the empirical evidence that more government reduces economic efficiency and growth and diminishes our liberties?

As will be shown, the arguments from the big government advocates are usually based on a combination of economic and historical ignorance, including an inability to think beyond Stage 1, envy, and just plain delusional thinking.

The New York Times editorial page has long been a bastion of this delusional thinking. On April 24, the paper produced one of its classic inane editorials in favor of higher taxes on labor and capital, which contained this gem of a sentence: "Memo to McCain: 401(k) savers get no benefit from a low capital-gains [tax] rate."

Everyone who has ever taken basic economics should know a lower tax rate on an investment (i.e., the capital-gains tax) will lead a higher rate of return, and hence the investment will be worth more. Other things being equal, lower capital gains tax rates will lead to higher stock prices, and all who hold stocks will benefit, whether or not they pay a particular tax on that stock. Though this concept is not difficult for most people to understand, it seems beyond the knowledge and reasoning ability of those who write editorials for the New York Times.

Unfortunately, the Times has plenty of global company when it comes to economic ignorance, envy and delusional thinking. We find it among many politicians in almost every government. International organizations, such as the United Nations, and even the Organization for Economic Cooperation and Development and their dependent allies, are filled with those who advocate higher taxes on capital and labor, all in the name of "tax harmonization."

The following are only some examples of what those who advocate higher taxes on capital and labor either do not understand or willfully choose to ignore:

• Many studies by leading economists, including those from even the International Monetary Fund and World Bank, have shown most countries tax and spend at a level higher than that which would maximize their economic growth and social welfare.

• Financial capital (productive savings and investment) is the "seed corn" of modern economies, and when it is taxed there are fewer funds available for businesspeople to create new jobs and invest in new productivity, including life enhancing and lifesaving innovations.

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