Dan Mitchell writes at his International Liberty blog about the connection between capital and workers’ pay. Mitchell assesses the graphic below, which charts the relationship between investment and labor compensation.
The clear message is that workers earn more when there is more capital, which should be a common-sense observation. After all, workers with lots of machines, technology, and equipment obviously will be more productive (i.e., produce more per hour worked) than workers who don’t have access to capital.
And in the long run, worker compensation is tied to productivity.
This is why the President’s class-warfare proposals to increase capital gains tax rates, along with other proposals to increase the tax burden on saving and investment, are so pernicious.
The White House claims that the “rich” will bear the burden of the new taxes on capital, but the net effect will be to discourage capital investment, which means workers will be less productive and earn less income.