Social destruction by the abuse of money

by Alasdair Macleod, GoldMoney:

In Britain, the top 1% of earners pay over a quarter of all income tax collected, and while super-rich British residents perhaps don’t have the tax breaks the Macklowes enjoy, the bulk of the burden falls on lawyers, bankers, company executives and owners of successful private enterprises. And it should, say the collectivists....

One of the juicier stories doing the rounds in New York society is the Macklowe divorce. Harry, the husband, kept a French mistress for two years before seeking a divorce from his wife of 58 years. So far, this is a run-of-the-mill marital split. But what made it the subject of gossip is the extraordinary lifestyle of the Macklowes, the mud being slung, and the expectations of the wronged 79-year old wife, seeking a billion or so to see out her remaining days.

They say hell hath no fury, and all that. Here is one of New York’s richest couples, washing their laundry in public, and it emerges that Harry has not paid tax since 1983. Harry’s lawyer bluntly stated in court that “people in real estate don’t pay taxes”. It echoes Leona Hemsley’s infamous quote that emerged at her trial thirty years ago, when the Queen of Mean said “We don’t pay taxes, only little people pay taxes.”

This still surprises many of us little people, but we must believe a top New York lawyer when he makes a statement in a court of law. The source of immense personal wealth in cities like New York is often from property development, and if this is a tax-free activity, it makes a mockery of the state redistributing money from the haves to the have-nots.

And sociologists wonder why there is so much discontent aimed at the establishment! This discontent finds expression in doubled-down socialism – morality-driven socialism rather than the Marxian version perhaps. It seems obvious to the masses that government is failing to collect taxes through not trying hard enough. But all that the Macklowe divorce evidence proves is one of life’s truisms: the rich are very good at finding legal ways not to pay tax.


Wealth-destruction and the state

Government welfare promises are never funded by the very rich. Anyway, there are too few of them to make any difference to the enormous scale of statist demands for tax revenue. But there is nonetheless an enormous burden imposed upon the successful wealth creators. In Britain, the top 1% of earners pay over a quarter of all income tax collected, and while super-rich British residents perhaps don’t have the tax breaks the Macklowes enjoy, the bulk of the burden falls on lawyers, bankers, company executives and owners of successful private enterprises. And it should, say the collectivists.

But when we look at the next layer down, those that earn more than the average wage, we see the state’s taxes have caused the worst economic distortions. We are referring to taxes on the wages of skilled blue-collar workers, and upwards. These are ordinary people with aspirations to do better for themselves and their families. These are the people who pay most of the other 75% of the income tax and sales taxes collected by the state. These are the people, who, if allowed to keep their earnings, would be incentivised to become more productive for the benefit of everyone. These are the people who would reduce the welfare burden on the state, given the choice, by being able to save for private healthcare and to pay for the education of their children.

Instead, they are forced to subsidise a far costlier state system. I was recently told by a credible source that the only form of surgery in the US that has fallen in price in recent years is the one not covered by highly regulated Medicare and Medicaid: plastic surgery. Some time ago I did a rough calculation of the cost of educating a child of primary school age in Britain, and found that the “free” state system costs about twice as much as educating a child privately. Keeping a male young offender locked up in Britain costs £85,975 per annum all-in, while it costs less than £40,000 to educate a child of the same age at Eton. And it’s not as if British borstals are bristling with expensive upper-class facilities, either.

I can think of very few parents who prefer to put their children through the state system rather than private education. Even left-wing Labour politicians in the UK send their children to private schools. Trade unions offer private healthcare to their own staff in preference to facing the queues at the National Health Service, while publicly damning private healthcare for taking resources away from the state system.

Money diverted in taxes from productive use to bolster state spending is an enormous unseen drag on the economy. It destroys personal wealth, and produces inferior or unwanted services in return. And while we can debate the benefits to the lowest earners in society and the long-term unemployed, we should not ignore the wealth that might otherwise have been accumulated, upon which ultimately the standard of living of even the poorest in society depends.

Lifestyles are now based on debt

State intervention has become so extensive and costly, that those with ambitions to better themselves and improve the conditions for their families have long been unable to do so out of heavily-taxed earnings. Instead, they resort to borrowing. A typical young couple buying a newly-built home on a housing estate, parking two cars in the driveway, well-dressed, and with children who no longer walk to school but are driven by a parent, represent the aspirations of your country’s future.

But how much of this visible wealth does the model couple own? The mortgage deeds are with the mortgage lender, representing most of the home’s value. The cars are not theirs until the end of the loan agreement, and then they must relinquish them, buy them, or trade them in for another car on finance. And the credit cards are expensive borrowing which for many people are a necessary financial bridge to the next payday. It is a sad fact that most salaried people have no financial buffer at all, and if their next pay-check fails to arrive, they risk losing their credit rating and possibly their home as well.

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