Dec 31, 2019

The 12 Economists of Christmas: Henry Hazlitt

When the taxman is like the Grinch
Shannon Dailey Staff writer

Christmas might be the most wonderful time of the year, but soon after it’s over, most Americans must come to grips with a less joyous reality: tax season. Even before tax time arrives, the reality of high rates of taxation can dampen people’s enjoyment of the holidays, since it reduces the amount of disposable income they had hoped to have available for gift-giving, entertaining, and other holiday traditions.

While he did not explicitly address the effect of taxes on holiday cheer, economic journalist Henry Hazlitt understood this phenomenon well and wrote about it in his famous, best-selling book Economics in One Lesson. In the book, Hazlitt showed how taxes inhibit social mobility and stunt overall economic growth.

Hazlitt argued that taxes discourage economic and social mobility because they disincentivize workers from creating value. “Every day each of us is in his own activity engaged in trying to reduce the effort it requires to accomplish a given result . . . to save his own labor, to economize the means required to achieve his ends,” he wrote. Higher income taxes incentivize people to work less because they receive less pay for the same amount of work (or sometimes even more work). People who are too heavily taxed are less able to move up the socioeconomic ladder and are less motivated to take risks in order to produce more value in the market. And so, during the holiday season, their gift budgets just don’t stretch as far as they could.

Additionally, taxes stunt overall economic growth because when people are less incentivized to work, job and productivity growth suffers. Even tax dollars spent on public works projects, which are government programs designed to create jobs, ultimately do not help workers and the economy, Hazlitt pointed out. The money for these programs ultimately comes from the taxpayer, so there is no real job creation, only the moving around of monies. He wrote, “For every public job created . . . a private job is being destroyed somewhere else.”  For these reasons, we shouldn’t expect make-work public works programs to be drivers of real economic growth.

Supreme Court Justice Oliver Wendell Holmes remarked that “taxes are what we pay for a civilized society.” It is one thing to levy taxes to pay for things like our system of justice, schools, and defense. But when the tax system becomes mostly a method of redistribution, it starts to look more like the Grinch. Taking money from productive activities doesn’t just limit our mobility and growth—it can make our Christmas stockings a lot barer.

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