Income taxes and poverty

The commonly agreed opinion on an income tax system is that it is necessary in order to reduce inequality in wealth. That is a total lie.

What the income tax does is tax the production of goods. This implies that it makes the production of goods more expensive and that fewer goods will be produced overall. This benefits the rich, who have the most accumulated goods, at the expense of the poor, who have the least accumulated goods, by increasing the price of those goods. What the income tax does is protect the value of the large fortunes and prevent the small fortunes from becoming wealthier.

The only politicians who support the poor are those who wish to abolish the income tax and all taxes on production. 

 I agree.

 The progressive income tax and the welfare state that often accompanies it can be summarised as taking away money from the productive population and giving it to the un-productive. Irrespective of the fact that the government should have no right to do this, as people should be equal before the law, the economic implications on their own can be disastrous. This is because tax brackets have two other negative consequences that are not often mentioned.

1. They remove the incentive to work harder. If I know that earning 20,000 per year I have to give 10,000 to the government, why would I strive to earn 30,000 when a progressive tax might take away as much as 18,000, in effect almost entirely taking away the effort and longer hours I put in (as well as more responsibility that comes with promotions). Decreased incentives for productivity (coupled with a ceiling for hours worked, as in France) seriously shake the foundations of capitalism.
2. The concept of Bracket Creep. This means that due to inflation, which is rampant in many countries, people move up into higher brackets of taxation without their real incomes rising. Since brackets are usually adjusted as nominal values, and very infrequently, this acts as a stealth tax, stealing money from the poorest.

 

Guys I could not agree more with you. My Father owns his own small business and one year he might have a great and productive time of it but the next year it will be a little more hard for him. What the damned progressive income tax does is it takes what he normally could put aside either for savings or expansion. Then when he is having a worse year and he falls into a lower income tax bracket, he still has less wealth since the prior year's higher bracket took more from him and prevented him from rolling that wealth over into the next year if he needed to. As you two already pointed out bigger companies might not feel the pinch as bad since they have gathered more money in their savings over time and will rely a little less on their present income for security then a small business will. All this tax does is hinder smaller incomes from gathering more wealth. For instance if my father could have more of his money back he most certainly would expand, and what this means is he could employ more people so his firm could produce more and therefore grab more of the market (customers). Heaven forbid someone gets a non government job, with health benefits!

I would add that progressive income taxes are a tax on social promotion. If someone is poor and wants to invest on his human capital in order to get a higher income in the future, most of this income will be transferred in the hands of the ruling class, thus reducing the incentives to improve one's own conditions. It is almost impossible to estimate the real long-run costs of different taxation schemes, but this factor seems relevant. I would add that this is one of the peculiar cases where reference to eventual historical regularities may be useful: there may be some empirical work on disincentives and will likely find some data to substantiate and quantify the theoretical reasoning.