#129 President Biden’s Road to Serfdom

 

Then Vice-President Joe Biden contributed to the 2015 President’s Economic Report, stating that higher taxes result in lower wages.  Thus President Biden’s call this week for higher taxes are leading America down The Road to Serfdom

 

Taxes Lower Wages

President Obama was correct.  His 2015 Economic report reads, “A lower effective marginal tax rate will tend to encourage additional projects and a larger capital stock. Increases in the capital available for each worker’s use, also referred to as capital deepening, boost productivity, wages, and output.”

Joe Biden was his Vice President, and thus, contributed to this statement.  Then, why is he now promoting tax increases that would do the opposite?  Back to the report that was written by the Administration when Joe Biden was Vice President, in 2015.  “When effective marginal rates are higher, potential projects need to generate more income if the business is to pay the tax and still provide investors with the required return. Businesses will therefore limit their activities to higher-return projects. Thus, all else equal, a higher effective marginal tax rate for businesses will tend to reduce the level of investment.”  The administration of which Joe Biden was a member in 2015 was correct.  Every reasonable economist agrees with that statement.  It brings to mind one of my favorite sayings, You can change economic policy, you can’t change economic law.  

Why does President Biden want to reduce productivity, wages and output?  That’s a reasonable question, because an article in the Wall Street Journal this week by James Freeman states clearly that his policies will do exactly that.  The article is titled “Biden Tax Hike: $3.5 Trillion.”  The subtitle reads, “The White House economic agenda is the principal threat to growth.”

 

Policies that Promote Production

We are rich because we have policies that promote production, which I unpack in more detail in podcast #27 by that title.  Taxes are a policy that reduces production.  

Early in the semester, when I ask students why some countries are rich, they give predictable answers, like oil and natural resources.  Those make SOME contribution, but it doesn’t explain why Japan is so rich with very few resources.  Hong Kong and Singapore have NO natural resources, and they are two of the richest places in the world, because they are effective traders. 

Venezuela has more oil and gas reserves than any country in the world, and there is not enough food on the shelves, nor basic medical supplies.  One-third of the country’s population has fled to neighboring countries.  Really, the first time I read that fact about Venezuela, I was stunned.  I read it three times, and looked it up.  It’s true.  So with abundant natural resources, why are they so poor?  They made one election mistake: They elected Socialist Hugo Chavez in 1999 and the country headed down what that guy called The Road to Serfdom.  Charles Payne of Fox Business News quipped at a recent Free Market Forum, sponsored by Hillsdale College, “You can only vote for Socialism once.  That has been true in Venezuela.  Is it becoming true in America?

President Biden’s policies are taking us down the Road to Serfdom.  How far will we go?  Because at some point, there’s no turning back, as the Venezuela’s have found. 

Stay tuned for a future podcast on how many South American countries are following Venezuela down the road to Serfdom.  

Our wealth is not divinely mandated.