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Tax Tyranny

Pascal Salin

Tax Tyranny does not aim to give a description of existing tax systems, rather it provides readers with the intellectual instruments which enable them to understand the role of taxation in the workings of economic systems and to evaluate the fairness of taxes.
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Chapter 3: The overtaxation of capital

Pascal Salin

Extract

Many taxes put a brake on the accumulation of capital, which is harmful for economic growth, since capital is needed to create or to develop firms and also to improve the standard of life of individuals (for instance housing). Specific taxes exist in most countries and are levied when people hold, exchange, or give capital. One of them is particularly harmful, the wealth tax, which exists in many countries (but it has been suppressed in several countries during recent years). But there are also taxes which do not seem to be taxes on capital, but which have an influence on the incentives to accumulate capital: Such is the case of the income tax. The taxation of capital must be considered not only harmful for economic prosperity, but also unfair since it punishes those who are making the effort of saving part of their resources. Therefore, the argument according to which capital taxation is justified, because the “distribution of capital is very unequal”, is not acceptable. In fact, the amount of existing capital is not the result of a “distribution”, but the consequence of voluntary individual efforts. Capital taxation may exist because politicians are concerned with short-term problems (for instance taxing existing capital) without caring for the consequences of their decisions in the long term (for instance a decrease in the rate of economic growth).

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