Saturday, July 31, 2010

Stepping Stones, Part II

By Rich Kozlovich

On July 19th, Gerard Jackson, posted an article with BrookesNews.Com entitled, “Why capital gains taxes retard economic growth”.  I couldn’t help being struck by the obviousness of his argument. He outlines historically why capital gains taxes hurt the economy.

I once explained to someone that the demagogues who demand a higher capital gains tax as a matter of fairness know that it is in reality a tax on the poor…who pay no federal income taxes. Why is it a tax on the poor? Because corporations don’t pay these taxes, they raise prices. Taxes are a cost of doing business. The only people who pay taxes are those who can’t pass them along to someone else. Unfortunately, as taxes and regulations increase, prices increase. That in turn diminishes the purchasing power of everyone and as a result only so much of a product or service will be sold.

Eventually people will go out of business and the ones left will have cornered the market; and no matter how high the taxes go up, or how regulations increase the cost of doing business, they will be able to survive because they will be the only ones left to provide those needed products or services. That's why the really large companies and corporations love both taxes and regulations. In combination they do more to stifle competition than anything.

The historical truth of this in the United States goes back to the Whiskey Rebellion of 1794, which was brought on by an excise tax on whiskey in 1791. This scheme was promoted by  the first Secretary of the Treasury, Alexander Hamilton, who was a believer in central planning and an all powerful central government.

Who were the most ardent supporters of this tax? The whiskey distillers in the large metropolitan centers! Why? In those days travel was difficult at best. No roads and bad roads was the rule outside of metropolitan areas and so farmers had to haul their corn into the towns and cities by mule pack. There is only so much corn you can load on the back of a mule and each farmer probably only had a few mules. Needless to say this required multiple trips, so they turned their corn into moonshine. This required less transportation, less work, less time away and the profits were greater. This cut in on the profits of the large distillers and so they loved the idea of added costs via taxes on the farmers.

His article shows that President Nixon, (who created the EPA and OSHA by the way) raised the capital gains tax from 28 per cent to 49 per cent.  Nixon was assured by his Treasury Department that a capital gains tax increase would raise $1.1 billion in the first year and then $3.2 billion a year until 1975.

The result: “revenue from the tax dropped sharply with realized gains from the sale of capital assets falling by 34 per cent, and the stock issues of struggling companies fell from about 500 in 1969 to precisely four in 1975.” “High capital gains taxes are a lousy revenue raiser.” Gerard goes on to say:
“In 1978 Congress slashed capital gains taxes; this resulted in an explosion in the supply of venture capital. By the start of 1979 a massive commitment to venture capital funds took place, from $39 million in 1977 to a staggering $570 million at the end of 1978. Tax collections on long-term capital gains, despite the dire predictions of big-spending critics of tax cuts, leapt from $8.5 billion in 1978 to $10.6 billion in 1979, $16.5 billion in 1983 rising to $23.7 billion in 1985.

By 1981 venture capital outlays had soared to $1.4 billion and the total amount of venture capital had risen to $5.8 billion. In 1981 the maximum tax rate on long-term capital gains was cut to 20 per cent. This resulted in the venture capital pool surging to $11.5 billion. Astonishingly enough, to conventional economists that is, venture capital outlays rose to $1.8 billion in the midst of the 1982 depression.

This was about 400 per cent more than had been out-laid during the 1970s slump. In 1983 these outlays rose to nearly $3 billion. Compare this situation to the period from 1969 to the 1970s which saw venture capital outlays collapse by about 90 per cent. All because of Nixon's ill-considered capital gains tax. But then Nixon never professed to know anything about economics, unlike most of his media critics.”
So now we see the same arguments being promoted that have been shown to be historical claptrap. Those who promote it denigrate those who point this out, just as in time past. Ignorance cannot be claimed here. The historical record going back centuries is replete with the evidence to show that this is true.

So what can we glean from all of this? What does this have to do with pest control? This is actually a truly “green” issue. The problem is that this is a mind set. People who should know better promote things that have historical underpinnings that show exactly what happens with a specific thing is done.

We have central planners telling us that;
• We don’t need pesticides.
• Chemicals all cause cancer, endocrine disruption, AHDH, autism, asthma, etc.
• Genetically modified foods are evil.
• Organic food techniques will feed the world.
• Gasoline driven cars have to go.
• Oil is a scarce commodity.
• Corn is better used as a fuel than a food.
• Wind and solar power can fulfill the needs of a technologically advanced society.
• Manufacturing causes global warming.
And they are all wrong. Central planners are usually bureaucrats who have never done anything except be bureaucrats; and they generally know very little about the subjects to which they are making major decisions about, and have little or no practical experience in these fields.  And even when they do their decisions have more to do with ideological goals rather than following the facts, whether they are from history or science

As Thomas Sowell has noted in his book, Intellectuals and Society, no matter how intelligent an elite may be they can't possible know as much as the population as a whole.  Furthermore, it is impossible for any small group of people to be able to anticipate and understand all the possible permutations and respond to unexpected events that require decision making on a daily basis.  It was thus so in the Soviet Union and it is so everywhere else in the world.  Perhaps not to that extent, but true none the less.  It’s even worse when they are in cahoots with Non Governmental Organizations that are environmental activists such as Greenpeace and their like.

We have the historical pathways of the past. Are we using these pathways of the past as stepping stones to the future? The answer is no; since it appears that ideology trumps history as well as science. 

Comments will not be accepted that are rude, crude, stupid or smarmy. Nor will I allow ad hominem attacks or comments from anyone who is "Anonymous”.

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