Should we tax capital?

The gist of why capital should not be taxed, why capitalists should not be burdened by the costs of regulation, and why there should be no unions or minimum wages or medical benefit mandates to skew the market price of labor seems to be this. The more capital that is accumulated by capitalists, the more they have to invest. The more they have to invest, the more factories, shops, and businesses they can open or expand. The more that this happens, the more jobs that will be created. More jobs, of course, means more work. And of course, for all of their constant whining, what's a Working Class without work?Is there something to this?

Yes, I think so. If one can imagine a mythical country that operates as a closed economy, definitively bounded by a page in an economics textbook, a place from which capital could never escape, then as more capital was created the amount of total capital in that society would increase like water filling a bucket. Having no place to go, this capital would be poured back into the economy. While there would be no particular necessity for wages to go up by themselves (except perhaps via inflation) even if capital in this society tended to be increased through the use of capital intensive labor saving devices, full employment would surely eventually result in any case. Labor would then become a seller's market and workers would then have the leverage to demand higher wages. The capitalist would pay these, needed labor for his investments. Higher wages would lead to more consumption, more capital, more jobs.... pretty soon the society would start looking like the 1950's. It might make sense to not tax the rich very much; maybe not at all.Now let's imagine another situation where capital is produced in one country and is then invested in another country on a wholesale basis. Does the argument that capital should not be taxed (or otherwise hindered) still hold? The originating country after all now gains nothing from its foregone taxes and the national risks that come with non-regulation. Certainly the workers lose, since the capital that would be maintaining their jobs and creating new jobs for their children is now moving to India and China. These countries, with their even lower taxes, looser regulations, and lower wages and physical plant costs are even more profitable to our capitalist. Would our capitalist still even need the American worker? Definitely. But perhaps not so much as a worker than as a consumer. At least while there are still workers who can afford to consume. Of course the consumption power of the Chinese and Indian worker is improving. The focus of consumption begins to show a geographic shift. Back in the United States, the country begins to run into a public cash crunch. Its roads, bridges, and sewer systems begin to deteriorate for lack of funds. Wages flatten out, then begin to fall overall. Unemployment rises. Politics become dramatically more polarized as more people fight over a smaller piece of the pie.The technical name for this is globalization.Now you might get the impression that I think that globalization is a bad thing. But in fact, I think it is a very good thing.However, it is a certain kind of a very good thing. It's a good thing like a double-blind medical study is a good thing, where half the patients get the new cancer drug and the other half gets Tic Tacs. Without a doubt, scientific medical breakthroughs can result. But it is at a certain cost. And it's not a cost that can be shrugged off by saying "I loved my mother, but if she had to be prescribed Tic Tacs as a cancer treatment for her last months on earth, then God Bless America." Double-blind medical experiments are great for abstract populations and doctors and can be pretty good for the lucky ones who get the right pills. As for the rest, all they can do is trust in God and Tic Tacs (in that order).Globalization is the same way. It's good for capitalists but not good in the same way for everyone else. And this is why we need to tax capital. The "don't tax capital" argument only works if capital stays put in the country where it isn't being taxed. But capital has not been staying put for decades. Why should it? Why should we expect it to? So when capital is being produced here and used someplace else, we are no longer getting the supposed benefits of low taxes on capital, the slack regulations, the stagnant salaries and benefits, the increased unemployment, the deteriorating physical plant and the environmental damage. Is it extortion to demand compensation through taxation? Would not this be getting value for value?

unagidon is the pen name of a former dotCommonweal blogger.  

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