Tax the rich, and you get fewer rich

All this fuss about “tax cuts for the rich, paid for by the poor” ignores some basic facts of life.

First, tax cuts aren’t handing out money. Homepaddock covered this one nicely.

Second, while making a  massive fuss about how the “poor” get hammered by this and that (much of which I have smypathy for – I was unimpressed with the idea to raise GST) the left forget the flip side of the coin – what the rich can do.

They can move. Easily.

Hank Nothhaft is the CEO of Tessera, a firm in the field of semiconductor miniaturization. He shows me the vacant office parks and empty lots around his company’s San Jose factory. Silicon Valley, he observes, lost more than a quarter of its computer, microchip, and communications-equipment manufacturing jobs from 2001 to 2008, and Tessera proved no exception. The company has kept some of its assembly lines and industrial operations going here, but it now produces two-thirds of its nanotechnology chips in less expensive North Carolina and in various countries overseas, with China becoming the latest contender for a production facility. Just back from a trip there, Nothhaft says that he has been offered terms he “cannot decently refuse.” Using the Internet and videoconferencing, he can manage Tessera factories around the globe without leaving his San Jose office. “The business environment is becoming awful in California,” Nothhaft complains—just by moving his headquarters to Nevada, he’d save $5 million a year in taxes.

In our case, individuals move out of the country completely, or move their income to companies or trusts. By reducing the top tax rates, compliance becomes less profitable, and this means less money spent hiding income, and more spend productivity.

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