Manarin Investment Counsel, Ltd.

All too often when listening to a group of people casually discussing the topic of taxation, I'm reminded of the old saying, "All the world's insane but thee and me, and sometimes I'm not so sure about thee."

That's because those who follow a statist (big government) agenda tell me that to soak the rich, we must increase their taxes.

Now I consider myself a rather open-minded, rational guy but when I'm confronted by an ideology that differs from my own, I want to see evidence.  Show me the proof that back up your claims. 

MAJOR PROBLEM:  In the case of taxing productivity, there isn't any proof.  I'm done extensive research and there is nothing that shows me that the benefits of increasing taxes on the wealthy outweigh the costs. 

No surprise there since in today's world most people blindly follow a traditional socialist model:  our progressive tax system. 

200 years ago early Americans would have overthrown their government had they been forced to pay a tax on their production.  The only federal taxes forced on them were on tobacco, liquor, and imports. 

Present day Americans are simply lifetime tax servants to an ever-growing Master in Washington, D.C. and they love it. 

So here's a modern history reality check:

• In the 1920s when President Calvin Coolidge cut taxes, the US economy grew faster than Nebraska corn.
• When JFK cut taxes in the 1960s, America went from having one car on every block to having one car in every garage. 
• Ronald Reagan's tax cuts in the 80s helped move us from a demand-management, consumption-oriented society to one that stimulated capital savings, investment, and production.

Translation:  Tax cuts result in healthy wealth creation for all citizens. 

One of the most inspiring individuals I studied early in my career was free market thinker Ludwig von Mises.  If you have any interest in fiscal policies that big government thugs prefer you not understand, I recommend reading anything written by him. 

In his book, PLANNING FOR FREEDOM, von Mises writes:

If the present tax rates had been in effect from the beginning of [the 20th] century, many who are millionaires today would live under more modest circumstances.  But all those new branches of industry which supply the masses with articles unheard of before would operate, if at all, on a much smaller scale, and their products would be beyond the reach of the common man.

Fast forward to 2007.  Looking back on the tax cuts of 2003 we learn that even though the tax rates of higher income individuals were reduced by 50 percent, the amount of taxes collected on the wealthiest Americans has almost doubled. 

And one more thing, the budget deficit has fallen.

It's precisely what history teaches us - cut taxes on the wealthy and revenues to the Treasury soar.  That's good fiscal policy. 

So what does this all mean for investors?

Depends.  Most will continue their "government will save us" thinking and hope for the best.  You and me are better off taking an anti-statist, self-educated approach to managing our financial lives and informing as many people as we can along the way.