Cry the beloved wealth creator: punitive taxation is destroying them

2013-10-15 00:00

A BRAVE man decides to risk his life’s savings, to invest in a new business. He works tirelessly, exercising his intellect, skill, diligence and creativity. He produces new innovative products and services.

He employs first one, then more people, some previously unemployed. He trains them until they can perform a wide range of useful and marketable functions. He nurtures his enterprise and develops more cost-effective means of production. This affords his patrons access to sorely needed and desired commodities at the lowest possible prices. Eventually, after a gargantuan effort, the business begins to make a profit and provide a much-deserved return.

And then, our wealth creator is approached by a bureaucrat who demands that he give away a considerable portion of his profit or face being fined or jailed. The wealth creator has harmed no one. On the contrary, he is making an invaluable contribution to the economy and has enhanced the lives of the people he employs. Yet he finds himself vilified and at the whim of the bureaucrat. Any non-co-operation could literally lead to the loss of his business and imprisonment.

This is legalised theft. The wealth creator is forced to yield. The bureaucrat, without the faintest concept of the hard work, energy, effort and risk involved in producing wealth, consumes it with confident entitlement. Much of it is squandered through corruption, inefficiency, unwarranted intrusion in every aspect of human life and in funding mindless pursuits such as wars that ordinary citizens would rather avoid.

There is no accountability for how the funds are spent, no recourse for poor performance and no regard for the fact that it is the wealth creator who has made all of these things possible.

The above scenario is objectionable and yet it happens, every day, all over the world, if wealth creators refuse to give away a big part of what they have worked so hard to produce.

Governments have been very skilful in poisoning the minds of millions of citizens when it comes to wealth creators and the taxes they pay. They weave webs of deceit to make us believe that the wealth creators in our societies are the rogues responsible for all manner of ill-deeds and any effort they make to minimise their taxes is scandalous and worthy of punishment.

They bamboozle the masses into believing that wealth creators owe them something far greater than the enormous responsibility they already bear through direct employment and the provision of essential goods and services to the public.

And, as great as the price for daring to be a wealth creator may be, they are then also held responsible for the rest of society’s inequalities. So conniving are governments that, when wealth creators merely structure their financial affairs in tax-efficient ways, governments would have us believe that they are effectively robbing society of what it deserves. They want us to believe that those who choose not to risk their time and capital, who choose not to work hard or innovate or build or grow, are entitled to the fruits of the labour and intellect of those who do. Words like “tax evasion”, “fiscal leakage”, “unlawful gains” and “tax fraud” are used to portray wealth creators as capitalist thugs.

An example of this is the remarkable success with which world governments have pinned the 2008 financial crisis on the private sector and capitalism. Anyone with an education and an Internet connection can work out that this is a colossal lie. Government meddling in the economy at the expense of the taxpayer is what ultimately led to the meltdown in Europe and the United States.

The audacity of governments is remarkable. They redirect the finger at the very people who make our societies work and prosper, and simultaneously draw a seemingly impenetrable veil against any criticism or demand for accountability for their own crimes against citizens and humanity in general.

Governments have an astonishing history of consistently misappropriating hard-earned wealth and misusing it. In South Africa, billions of taxpayer rands get squandered on houses, cars, junkets and entertainment for the political elite. The outcome is always the same. The wealth creators foot the bill for whatever governments fancy.

Henry Hazlitt, in Economics in One Lesson, states: “There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere, government spending is presented as a panacea for all our economic ills.” This is a book that should be read by everyone who has any interest in seeing country economies grow or individuals benefit from their own efforts. It decimates the fallacious rationale that favours high government spending supported by taxes,

As much as governments believe that they are justified in taxing us because they feel they are more capable and less conflicted than the private sector in addressing a nation’s challenges, there is no evidence to support this. To the contrary, empirical data reveals that people who produce wealth are far more likely to spend it in a way that is responsible and in direct accordance with the true needs of a nation and its economy.

Personal and corporate taxes worldwide have spun out of control. Governments incessantly preach that ever more spending is necessary to see the country through tough economic times and magically “create” employment.

In South Africa, things are no different. Private individuals and companies are buckling beneath the barrage of new taxes that have come about during the past two decades. A stupendous amount of taxpayer money has been poured into SARS, not only making it more efficient, bravo, but also intrusive and punitive.

As citizens, virtually every aspect of our lives is taxed. Besides personal and corporate tax, capital gains tax, donations tax, estate duty and dividends tax on the money we earn, we pay VAT on most services or items we buy, plus “sin” tax if they are luxury items. There is also transfer duty, carbon emissions tax, fuel and municipal levies, import duties … the list goes on. When analysed, South African wealth creators are often paying a rate of tax well above 50%.

Today’s number one threat to global economic recovery and prosperity is government and welfare statism. Over-legislation and regulation of markets everywhere have raised barriers to entry, added tremendous and unnecessary compliance costs, and prevented markets from operating efficiently. All of which discourage millions of talented young people from daring to become wealth creators because the red tape and penalty threats far outweigh the perceived rewards.

Tax-funded government social welfare programmes are all the rage. In many countries, they are so extreme that they actually encourage dependence on the state. Unemployment rates soar because why work when you can rely on someone else to support your lifestyle?

Excessive taxation tempts people and businesses to “evade” tax — the direct benefits of paying tax have not yet surpassed the actual costs. Many taxpayers are tired of paying to support an ever-increasing number of public servants, bureaucrats, and idle members of society who produce nothing of value.

We, the voting public, should be demanding political reforms that will restore the original purpose of governments worldwide and restrict them to performing core functions only.

For countries and their people to give of their best and live their best lives, governments must leave the business of business and the determining of life standards in the hands of the private sector.

The madness has to end.

• Temba A. Nolutshungu is a director of the Free Market Foundation. The views expressed are the author’s, and are not necessarily shared by the members of the foundation.

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