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The Power to Tax Is the Power to Destroy—Societies

If the Europeans couldn't succeed by seizing the ownership of productive enterprises, the next logical step in funding entitlements was to tax the profits produced by those enterprises. Profits were taxed at the corporate level, of course, but the serious money was raised by taxing individuals.¹⁵

When income taxes were first introduced, rates were very low (7% in the United States, for example) and compliance was laughable. But after World War II, and especially in the 1970s, when state-owned enterprises began to implode, tax rates skyrocketed. In Britain, top marginal rates stood at 98 percent as late as 1979.¹⁶ Such rates so suppressed initiative, and so crushed private enterprise, that it seemed as if everyone in the UK was on the dole.

And in fact, everyone was on the dole, not just in Britain but across Europe. Because it wouldn't make sense for middle-class taxpayers to pay out in taxes more than they were getting back in entitlements, the only people who were net taxpayers were the wealthy. And once the wealthy had been squeezed dry, the party was over. As Margaret Thatcher was fond of pointing out, if your strategy is to pay for ever-increasing entitlements with ever-fewer people's money, you will soon run out of other people's money.

There are two fundamental problems with very high, very progressive tax regimes. The first, already mentioned, is that they destroy initiative. Even to this day, Europe (outside of post-Thatcher ...