Sunday, January 06, 2013

When Capital Trickles Away, Not Down

Published in The Tennessean, Sunday, January 6, 2013 and at
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Richard J. Grant

Although nature presents us with an adequate array of obstacles, many of society’s most formidable ills are self-inflicted, most potently through the ballot box. The framers of the U.S. Constitution were rightly wary of the dangers of unfettered democracy. They understood that most parts of our lives should be set apart, protected from the reach of voters.

Over two centuries later, voters seem no more reliable. They can find all sorts of reasons to meddle in other people’s lives through the magic of government. They seem more able to imagine the wonderful things that governments might do than they are able to imagine the costs. Imagination is often untethered to education.

Those who would wish the government more tax revenue, would also have us believe that taxes are benign in their impact on business. After all, in the past century we have had some of the highest corporate and personal income-tax rates in the world, but we have also had plenty of profitable companies and prosperous individuals.

If we ask the owners and managers of these profitable companies how taxes affected their operations, we will always find some who will claim that they simply took taxation in stride. Even those managers that criticize taxes for reducing profitability and possibly putting their businesses at risk can be, and often are, dismissed as merely greedy or uncaring. They were, after all, profitable.

The problem with our question is that we were asking only those that were profitable or, to put it differently, those companies that have continued to operate. We tend to lose track of companies that no longer exist and we rarely have any inkling of all those planned businesses that might have come into existence had business conditions, such as tax burdens, been better.

When we base our judgments of a situation mostly on the experiences of those who succeeded, our judgments may suffer from what statisticians call ...

Richard J. Grant is a Professor of Finance and Economics at Lipscomb University and a Senior Fellow at the Beacon Center of Tennessee. His column appears fortnightly on Sundays. E-mail messages received at:

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