Negative Consequences of Low Taxation

There are myths that perpetuate what was called – Reaganomics, reducing taxes to stimulate economic growth. The concept is simple: The economy grows when people spend more; so lower taxes so people have more to spend. Capitalist arguments for low taxation also suggest that low taxes allow wealthy citizens to build more businesses, thus creating more jobs. But, these so-called benefits of low taxation are myths. An extremely high tax rate is actually economically more beneficial.

An extremely high tax rate on the wealthiest segment of society creates a disincentive to hoard wealth. An extremely high tax rate on the wealthiest segment of society encourages the corporate elite to distribute corporate profits among the employees that participated in producing the profits. It is from a well paid Middle-class that most viable new businesses develop.

When corporate leaders have a choice between distributing corporate profits among the employees or having the government confiscate the hoarded wealth, the high taxes create an incentive to equitably distribute the profits. The distribution of profits often take the form of company paid retirement pensions and company paid healthcare.

Low tax rates on the wealthiest segment of society creates an incentive to hoard wealth. Corporate leaders, therefore, shift financial responsibility for retirement and healthcare over to employees. And, corporate leaders pay employees a reduced percentage of the corporate profits. The corporate leaders then use these savings to fund higher incomes for themselves. Low taxation stimulates greed. Greed inspires hoarding. This hoarding creates greater wealth disparity that weakens the Middle-class. It is the weakening of the Middle-class that impairs economic growth and the development of new business.

Reducing the tax burden on the lower income segments of society does stimulate spending among those segments. Capitalists, however, fallaciously apply to the rich the benefit of low taxes on the poor. The argument for low taxes, however, only applies to those who are unable to purchase the basic necessities of life; it does not apply to those who hoard excess wealth.

FACT:

Economic growth is stimulated the greatest when the poor pay little or no taxes and the rich pay very high taxes.