The rising popularity of Bernie Sanders shows, among other things, that a significant number of Americans believe his claim that higher taxes would benefit all Americans, and the poorest especially.
But Sanders is peddling a dangerous delusion. Reality does not bear out his economic theory. To find out why, we need only look at the impact of high-tax liberalism on global poverty. Take Europe. According to the CIA’s Factbook (globally recognized as a reliable analytical tool), the poverty rate is around 15 percent in the United States, Britain and Germany. However, the comparative tax rates in Britain and Germany far exceed those of the United States. More relevant, taxes on higher incomes are considerably higher across Europe. This raises a difficult question for European socialists: why, after years of expansive government, have they failed to confront poverty?
The reason, in part, is punitive tax rates only push wealth to alternate lower-tax locations (thus denying investment in communities that need it most). In this sense, the liberal obsession with higher taxation is an intellectual stick-man against poverty. It offers an emotional veil for a serious problem. Those who have experienced liberal orthodoxy know this truth all too well.
Look at the Vietnamese people today. Although the Communist regime remains strikingly authoritarian, the Vietnamese are now the most fervent supporters of their nation’s emerging capitalism. They know that broadening opportunity and economic growth empower all of a society’s citizens: rich, middle-income, and poor alike.
This raises a difficult question for European socialists: why, after years of expansive government, have they failed to confront poverty?
But another reason why high taxes don’t cure poverty is in their transfer of power from individuals to government. This poses three distinct problems. First, government is decidedly inefficient and ineffective in its allocation of resources towards the social good. As I noted recently in regards to Chicago, liberal mismanagement of public services is catastrophic for those at the bottom of the economic ladder. The same is true for middle-class communities, as northern Virginia residents learned this weekend.
Second, wealthy individuals tend to invest their capital in long-term economic investments. Whether this is investment in start-up companies, or stock markets, or in an existing business, the application of wealth in pursuit of a profit serves to benefit others. It means jobs, efficiency, and beneficial entrepreneurial development (think of ride sharing firms, for example).
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Third, and most importantly, high taxes necessarily flow into the expansion of government. Where taxes are high, the private sector shrinks. And the consequences of this shrinking are variably witnessed in Europe’s economic stagnation and in the failed state of Venezuela.
Ultimately, fighting poverty demands more intellectually rigorous ideas in place of “tax the rich” platitudes. As studies past and present have found, the key to defeating poverty is education reform: that great equalizer of social mobility. But we must also improve lower-income access to tangible capital, enable capital flows, expand affordable health care, and restore fiscal solvency in government.
And conservatives must also be willing to look in the mirror. We must pursue bi-partisan anti-poverty campaigns and confront crony capitalism wherever it rears its ugly head.