Economist Skousen takes Buffett, Stein to task on taxing the rich

Billionaire Warren Buffett and economist/actor Ben Stein have made public pronouncements supporting higher taxes for “the rich.” In a new column posted at Human Events, economist Mark Skousen explains why they’re wrong.

Of course, Buffett and Stein are correct in one way: The rich can afford to pay more in taxes. The rich (I’m in this category) have surplus wealth that we can draw on to send to Washington.

The real question: Is that a good idea?

Suppose an American entrepreneur earns $1 million, and is able to save half of it after paying taxes and his living expenses. He can use that half a million dollars in a variety of ways:

1. Expand his business, or start a new business (creating new jobs).

2. Invest in other successful businesses, i.e., invest in stocks and bonds, or through private venture capital.

3. Place funds in bank savings or CDs, which in turn might be loaned out to businesses.

4. Give money to good causes—charities, churches, think tanks and alma maters (e.g., scholarships for needy students).

5. Make improvements on his home by hiring skilled workers, etc., or spend the money in other ways.

Or send the tax money into Washington in hopes that the money will be used appropriately.

The question that Warren Buffett, Ben Stein and other wealthy Americans need to answer is this: Will this surplus wealth be used in a productive way or wasted on some boondoggle?

I suspect that Warren Buffett and Ben Stein could use the money more productively than the federal government.

And that’s the crux of the matter (which has been lost in this debate):

An income tax on the rich is a tax on productive capital.

A capital gains tax is a tax on capital.

A federal estate (or inheritance) tax is a tax on capital.

A tax on interest and dividends is a tax on capital.

And it is private productive capital that grows an economy, not wasteful or inefficient government spending.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...