Don't Even Try To Get Rich

Regarding the Governor's proposed tax hikes, Isaac Smith over at FSP had this to say:

The essentially flat nature of the current state income tax is unfair to low-income families; as I've argued before, if we're all going to pony up to keep the government running effectively, it should be done with an eye toward the fact that higher income people need to be taxed at a higher rate in order to have the same effect on their utility as lower rates would on people with lower incomes. Even apart from the need to close the state budget deficit, this would be a welcome change.

I was trying to have a relaxing weekend, but this stirred me up a bit. Mr. Smith says that taxes on the rich should be higher even if the state didn't need the money!! What?!! The following is the liberal tax mindset:

"Just for the hell of it, let's hit those rich bastards where it hurts!! Rich people are not normal people--they are evil! They don't need all their money--the rest of us do. Yes, all of us who didn't make that money have a right to take it through taxes simply because we don't make as much money and we need it more than they do."

Mr. Smith also says that higher taxes on the rich are necessary from a fairness perspective to ensure the same negative effect on utility as would happen to other people paying lower tax rates.

What message does that send? The market economy relies on individual people looking out for their own interests, and trying to make more money. The policy Mr. Smith would like to see ensures that hard work and efforts to make more money are fruitless--because as soon as you make more money, the higher tax structure will kick in and your quality of life will be the same as when you were making less money. There is no incentive to work harder or become more productive, and that is not good. To clarify, when there is no free market incentive to achieve individual success because the government penalizes such actions, it is called socialism.

And since when is taxing everybody at the same income tax rate not the most fair thing possible? If everybody pays the same percentage of their income as taxes, the fairest outcome is achieved.

Which brings me to my next point. I am aware that rich people have more money left-over after taxes than middle class and poor people. I am fine with that, and it is actually better for the middle class and poor people. Rich people invest their money in capital (companies, equipment, etc.) for the purpose of trying to become richer. But the capital needs labor to be productive. So, the owners of capital hire labor (i.e. middle class and poorer people) to operate the capital. Since labor is a finite quantity, at some point the scarcity of labor bids up its price, and the workers make more money.

If you tax the rich at such a rate that their utility can never improve, you eliminate the reason for the rich to invest. Why work your butt off to make more money if it's just going to be taxed away? Capital owners would hire fewer people, and the people they did hire would make less money.

Why would we want that?