The Fantasy of Forcing the Rich to Bail Out Europe

In the world of statism, everything operates in very simple terms. Just come up with the numbers (supplied by supposed experts), and expect every edict to deliver the targeted results.

Such insight can be gleaned from the blaring drumbeat of class warfare politics in the Eurozone where political authorities have been eyeing to tax the rich to solve the current crisis.

Writes the CNBC,

To many in Europe, the Continent has two big economic problems: Huge debt, and high inequality between the rich and the rest.

Now some politicians are advocating a plan to solve both.

The idea, first floated by a German economic policy group, calls for imposing a 10 percent tax on the wealth of the richest Europeans and forcing them to lend money to their governments.

The plan calls for placing a one-time 10 percent levy on the total assets for those with more than $309,000 in assets (or couples with more than $611,000). In addition, it calls for a “forced loan” program, in which the wealthy lend money to their governments that could be paid back over time.

Stefan Bach of the prestigious the German Institute for Economic Research (DIW) in Berlin, which floated the plan, said that: "In many countries the sovereign debt levels have increased considerably, and at the same time we also have very high amounts of private assets that, taken together, considerably exceed the total national debts of all [euro-zone] countries."

In other words, the wealth of the wealthy is more than enough to plug government budget holes.

The idea gaining popularity among European politicians. An Austrian member of the European Parliament, Jörg Leichtfried, favors the plan for forced loans, saying the rich could lend to the states at low interest rates. The loans, he said, would not be an “expropriation,” since they would be paid back. The head of Austria’s Social Democratic Group also backs the plan, saying states need to fix their budget troubles.

For statists: legalize the plunder of the wealthy, collect and the problem gets easily solved.

But there are two more problems to reckon with;

one, statists and politicians are dealing with human beings who will act to protect their own interests from political predations, and

second, if taxing has been that easy then what stops government from spending more? Having to confiscate everything else from the rich, these politicians would end up with no one else to tax. So we end up with a crisis again.

A good example of the first scenario is the recent incidents of “runaway luxury yachts”, as blogged by Dan Mitchell of the Cato Institute, where wealthy yacht owners flee Italian taxing authorities by sailing to and docking at foreign “friendlier ports”. These yacht owners would instead access their boats through “low-cost budget flights from Italy for a fraction of the tax bill they might otherwise face”.

In addition, the unexpected consequence from taxing yacht owners has been to penalize the industry which affects mostly the middle income people, who suffer from lost business opportunities.

So tax authorities essentially does an Aesop, kill two birds with one stone.

The moral of the tax story says Dan Mitchell is that

The politicians need to understand that taxpayers don’t meekly acquiesce, like lambs in a slaughterhouse.

• When tax rates increase, sometimes people engage in tax avoidance, lowering their tax liabilities legally.
• When tax rates change, sometimes people choose to alter their levels of work, saving, and investment.
• And when tax rates go up, sometimes people resort to illegal steps to protect themselves from the tax authority.

Heck, even the folks at the International Monetary Fund (a crowd not known for rabid free-market sympathies) have acknowledged that excessive taxation is the leading cause of the shadow economy.

Thus, the idea that forcing the rich to bailout Europe is just that…a statist fantasy.