AIFG Blogs

Tax eats into income – the rewards of work. It makes it less worthwhile for people to earn, save and accumulate the capital goods that will raise productivity and generate wealth for the whole community.

Taxes on these things have the economically and morally debilitating effect of promoting idleness and indebtedness – which may explain some of our present predicament.

There is a strong argument that people who create things should enjoy the fruits of their creativity. It is, after all, their labour and ingenuity that produces those fruits. People have a right to use their natural talents freely and without others impeding them, as taxation surely does. Tax stifles people’s creativity, which harms us all.

Inheritance taxes also discourage saving and capital accumulation. It is also at odds with our basic ethical programming – since the drive to provide for one’s friends and family, and in particular one’s children, is a strong human instinct. The tax hits families at the very worst time of their lives – after bereavement. It encourages people to rearrange their affairs to avoid it; with the unfortunate result that their assets are likely to produce less than they might, making them and their families worse off. Hardly a just tax.

Precisely because of these perverse effects on creativity and productivity, high-tax countries grow more slowly than low-tax countries. They export less and create fewer jobs. That is bad news for the millions of individuals whose prosperity is directly diminished. But not only that, they also harm anyone who depends on government and charitable support, because a less wealthy public has less to spend on such causes.

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Is taxation theft? Some people say so, but the term is loaded and therefore perhaps best avoided. Unlike theft, taxation is usually imposed only by the decision of a majority, after public debate, and for public rather than private purposes.

Nevertheless, if two strong people took money from a third by force and spent it on themselves, we would certainly call it theft. If 51 per cent take money by force from the other 49 per cent and spend it as they think fit, is there really such a big difference?

But such name-calling is hardly necessary. As we have seen in this series, high taxes are plainly not moral, or generous, or the hallmark of a humane society. On the contrary, they are coercive, they undermine personal morality and responsibility, they diminish prosperity and crowd out charity, they are divisive and inefficient, they reward power and discourage creativity and they turn both people and governments into cheats. The moral case against them, in other words, is quite strong enough.

Eamonn Butler is director of the Adam Smith Institute and has a PhD in Moral Philosophy from the University of St Andrews in Scotland.

President Obama and his allies in the environmental movement have promised to usher in a green economy that will create millions of new green jobs.  Under the wise leadership of our energy bureaucracy, government officials have invested millions in taxpayer money in renewable energy providers, claiming to be providing the jobs of tomorrow, says Kenneth P. Green, a resident scholar at the American Enterprise Institute.

However, such promises are disingenuous and fail to deliver for a labor market that is hungry for job creation. This failure can be predicted by economic theory and proven by empirical results.

• Economic theory emphasizes that government bureaucrats do not have magical knowledge of which technologies are going to outperform any other technologies.
• The idea that bureaucrats have such knowledge is an example of what Friedrich Hayek called "the fatal conceit," and granting them power to act on knowledge they do not possess leads to inefficiency by misallocating capital to suboptimal ends.
• Economic theory also tells us that jobs are not created by governments: governments merely transfer good fortune from one sector to another.
• In this regard, to call any government action a "job creating measure" is to misrepresent the truth: that government stimulating jobs in one area robs them from somewhere else.

The employment and cost data coming out of the green energy sector is consistent with what economic theory predicted, namely that government action yielded too few jobs for too much money.

• When talking about our bold green energy future, President Obama held up Spain as an example of what America should be doing.
• Yet researchers at Spain's Universidad Rey Juan Carlos found that if America followed Spain's example, for every renewable energy job that the United States managed to create, the country should expect a loss of at least 2.2 traditional jobs on average.
• They also found that green jobs are costly: each green job created in Spain's effort cost about $750,000, and only one in 10 of the new green jobs were permanent.
• Thus, creating even 3 million new green jobs would cost $2.25 trillion dollars.

Most telling are the results on the ground: the Mackinac Center for Public Policy reports that in Michigan, federal stimulus money amounting to $34.5 million managed to create a mere 183 jobs amongst 14 companies.

Fred Becker is the president of the National Association of Federal Credit Unions. He knows all too well that the lending cap for credit for business members is tying the hands of both lenders and entrepreneurs.

Becker shows us a number of examples of how of small-business success stories are fueled by credit union loans. They are shining examples of what can be accomplished when small businesses and credit unions -- not-for-profit, member-owned financial institutions -- work together.

Small businesses are vital to Main Street and our nation's economic growth. According to a recent Small Business Administration report, small businesses outperformed large firms in job creation by 75 percent from 1992 through 2010.

Consider the story of John and Suzanne Hermann, owners of the Bagel Factory in San Antonio, Texas. After being rejected by several financial institutions, the Hermanns turned to Randolph Brooks Federal Credit Union (RBFCU) and were approved for a loan to start their business. Ms. Hermann said they contacted at least 15 different financial institutions. Most refused to even meet with them. Because of her husband's status as a military veteran, they were, however, able to qualify for a Patriot Express Loan through RBFCU and have built a thriving business that now employs 14 people.

Seven years ago, two wineries in the Finger Lakes area came to Visions Federal Credit Union. They said that the banks that held their business loans had sold them to a venture capital company in New York City. The venture capital company subsequently closed down their lines of credit and was pressuring them to pay off the loans. Visions helped the wineries by providing financing for their wine-making operations. Today, Visions has two of the largest Finger Lakes wineries and three smaller wineries as members. Visions' participation in this agricultural-type lending helped the wineries create hundreds of jobs.

To read more, click here.

In today's Wall Street Journal, Magnolia Strategy Partners CEO Nicholas N. Owens chronicles one small business owner's ongoing struggle against the bureaucratic leviathan.  

Owens served from 2006-09 as national ombudsman and assistant administrator for regulatory enforcement fairness at the Small Business Administration. He's been a go-to consultant for many a David facing the regulatory Goliath.
Here's a little taste of his article:

This week is National Small Business Week, a time to celebrate the ingenuity of entrepreneurs—and to consider how government can provide better service to the small enterprises that form the backbone of American industry.  

Consider the Environmental Protection Agency official who described his agency's work as akin to crucifixion. In a Web video from 2010 that recently came to light, Al Armendariz likened regulatory enforcement to the Roman imperial practice of crucifying people to serve as an example to others: soldiers would go to "a town somewhere, they'd find the first five guys they saw, and they'd crucify them," he explained. "And then, you know, that town was really easy to manage for the next few years." 

Mr. Armendariz's point was that making examples of certain businesses or industries would serve as a deterrent to ensure compliance. But the way he illustrated his point provoked outrage, and within days he had resigned from the agency—proving again that the journalist Michael Kinsley was right to say that a "gaffe" in Washington is when someone accidentally tells the truth. 

To read more, click here.

Politicians should be honest about the amount of tax they charge us. But they are not. Governments always want to spend more money than we would willingly pay. So they turn to ‘stealth’ taxes, in which the full burden of the tax is deliberately concealed.

Rather than raise the ‘headline’ rate of income tax, for example, payment thresholds may be adjusted, or allowed to lag behind inflation, so that more people fall into higher tax brackets. Reliefs and exemptions may be phased out. Hidden charges are imposed. And there are countless other examples. That is dishonest and morally unacceptable.

It is immoral and divisive to levy taxes on particular groups – people with high incomes, say, or who choose to spend more of their money on large houses, expensive cars or other extravagances – out of pure envy. It is wrong to impose tax rates so high as to drive talented people to avoid and evade them, or simply to migrate and create business and employment opportunities in other countries rather than at home.

But all public programs are divisive. In the market place, different people can choose different products. Car buyers, for example, can choose any colour they want, in countless shades: one person’s choice does not preclude another’s. Things are quite different in politics and government, however. Elections and votes in the legislature decide what everyone will have – from the size of the defence force through the frequency of the mail delivery to the quality of the road repairs.

People may have different views on what their tax money should be spent on; but in the political arena there is only one winner. Rather than accommodating diversity in peaceful coexistence, political decisions pitch different people and groups and opinions against each other. The higher the taxes they pay, the more determined people will be that their choices should prevail, and the bitterer becomes the political debate. Such factional rivalry undermines the idea and substance of a moral society.

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Eamonn Butler is director of the Adam Smith Institute and author of The Best Book on the Market. He has a PhD in moral philosophy. In his next and last piece in this series, he shows the perverse incentives caused by taxation and the moral harm they produce.

The green-lobby likes to talk about green jobs, but they are oddly quiet when it comes to job creation in the conventional energy economy. The figure below (by super-blogger Mark Perry) shows the stunning trend in conventional energy job creation, contrasted with non-farm employment. It’s pretty plain to see where the economy is bouncing back.

Likewise, people significantly underestimate the cost of public services. They see the high cost they pay in taxes and the modest level of service they get in return – which makes them conclude that public services are poorly targeted and that the bureaucracy is wasteful and inefficient. They figure, rightly or wrongly, that they are getting poor value from the money they pay in taxes. And the higher that taxes go, the more likely are people to regard them as unjust confiscation rather than a legitimate payment for services. Sometimes, such alienation leads to taxpayer revolts – as with California’s 1978 Proposition 13 initiative.

Likewise, as the range of functions performed by the government grows ever wider on the back of rising taxation, people each see the government doing more and more things that they see as marginal, pointless or even downright undesirable. This again makes them feel like exploited victims of the political class rather than willing contributors.

Moreover, as government programs expand, managing them all becomes harder for the authorities. Mistakes multiply, the scale of the potential shortcomings becomes larger, and gaps, inconsistencies and injustices open up. An overstretched government begins to lose authority, and citizens become increasingly cynical of law and authority.

So as taxes rise, people are more likely to avoid or evade them. The Treasury responds to that by tightening the rules and raising penalties, but this extra coercion breeds even greater resentment, in a downward moral spiral. Will Rogers once joked that income tax had created more liars than had golf. When ordinary people come to believe that taxes are unjustly high, it makes criminals of them.

As the nineteenth century French politician and author, Frédéric Bastiat, pointed out, almost everyone supports the provision of basic services such as defense and the administration of justice. But when people believe that government is plundering, they will inevitably try to avoid or evade the taxes it imposes on them.

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Eamonn Butler is director of the Adam Smith Institute and author of The Best Book on the Market. He has a PhD in moral philosophy. In his next piece, he explains why taxes are so often dishonest and why government spending is socially divisive.

Decker: You told me you couldn’t create your company in today’s environment. That’s quite a startling statement about such a successful business. Why not?

Allison: BB&T grew through local decision-making and personalized service focused on small businesses and the middle market. The current regulatory environment not only imposes extraordinary cost on smaller financial institutions, it makes it difficult to treat each customer as a special individual. Personalized service is now considered by the regulators to be “disparate” treatment. Small-business lending is part science and part art. It is extraordinarily difficult to execute a personalized value proposition with bank examiners micromanaging every decision.

Decker: Banks are used as whipping boys to impute blame for the collapse of the housing market, but government played a central role in the mortgage crisis. Can you explain how Washington intervention manipulated the market with such disastrous results?

Allison: Government policy is the primary cause of the financial crisis. The Federal Reserve “printed” too much money in the early 2000s to avoid a mild recession, which led to a massive misinvestment. The misinvestment was focused in the housing market due to the affordable housing (subprime) lending policies imposed by Congress on the giant Government Sponsored Enterprises (Freddie Mac and Fannie Mae), which would never have existed in a free market. When Freddie and Fannie failed, they owed $5.5 trillion and had $2 trillion in subprime loans. Because Freddie/Fannie had such a dominate share of home-mortgage lending in the United States (75 percent), they drove down the lending standards for the whole industry.

Decker: Government regulation is spurring a massive consolidation in the financial-services industry in which some institutions are deemed “too big to fail.” Doesn’t this empower the federal bureaucracy more than ever? What are the consequences of such a centralizing dynamic in this important sector?

Allison: If you want to centrally manage an economy, control the allocation of capital. Dodd-Frank is a dramatic move toward statism (i.e., crony socialism) as government bureaucrats can practically decide which industries, companies and consumers have available credit. Dodd-Frank encourages more consolidation in the banking industry and instead of eliminating “too big to fail,” makes this practice a permanent public policy. It is easier for the centralized government authorities to control a few large institutions than many small companies.

Decker: As it stands, Obamacare will foist untold costs onto the backs of U.S. businesses and taxpayers. There is a debate over whether it can be fixed by tinkering with some elements of it while keeping large chunks of the law. What’s your view of this policy and the greater context of the expanding dependency state in this country in relation to national competitiveness?

Allison: Obamacare should be completely repealed. It will materially raise health care costs and result in federal administrators rationing care. We need to totally privatize medical care for those under 45, which will re-introduce price competition into medicine. It is important to realize that when Medicare (the predecessor to Obamacare) was introduced, the U.S. health care system was far more efficient and at least as fair as today. The health care system had not failed. Medicare was introduced to “buy” votes for the Democratic Party, as the first Medicare participants received a huge subsidy and voted accordingly. Unless there is a radical overhaul, Medicare/Medicaid/Obamacare will ultimately bankrupt the United States. (We will need to continue to subsidize current Medicare participants and those over 45 who are locked into the system.)

Decker: The Obama administration talks an awful lot about an economic recovery, yet the unemployment rate is still high, record numbers of Americans are on food stamps and the national debt continues to mount. What does such an anemic recovery say about the real state of our economy?

Allison: This is the slowest recovery in U.S. history. We have almost 5 million less jobs than when the recession began, despite running massive government deficits. Destructive public policy is the cause of this failed recovery. There has been a massive increase in regulatory oversight reducing productivity gains and stifling innovation. Also, business leaders know our current fiscal policies are unsustainable and yet there is not a meaningful plan to deal with this issue. While businessmen do not want to personally pay higher taxes, at a deeper level, they know that increasing taxes on millionaires is not a serious solution to our massive deficits. They want to see a credible plan to radically reduce government expenditures and roll back the regulatory state, thereby returning the U.S. government to financial stability. Entrepreneurs want a return to limited government, individual rights and free markets. Until they see this trend, business leaders, who are the job creators, will be hesitant to invest.

Brett M. Decker is the editorial page editor of The Washington Times. He is coauthor of “Bowing to Beijing” (Regnery, 2011).

John A. Allison is the former chairman and CEO of BB&T Corporation, where he started working in 1971. Under Mr. Allison’s leadership, BB&T grew from $4.5 billion in assets to $152 billion, becoming America’s 10th largest financial services company and earning the bank’s chairman a spot on Harvard Business Review’s list of top 100 most successful CEOs in the world. Currently a distinguished professor at Wake Forest University’s School of Business, Mr. Allison is also a leader for American Institute for Growth, a group of entrepreneurs who promote pro-growth policies to support small business. You can find out more at jobcreatorsalliance.org.

Good economic news is hard to come by these days as our national economy continues to struggle. The latest jobs report was just more of the same: more than 5 million long-term unemployed, nearly 4 million "missing workers," and 4.7 million jobs needed to get back to where we were before the Great Recession.

As an entrepreneur and job creator, it’s disheartening to see so many of our fellow Americans out of work and discouraging to see the national debate on jobs so devoid of the voices of small business owners. As a member of the American Institute for Growth, I am committed to advocating on behalf of small business owners who are struggling against the unprecedented regulatory onslaught coming from Washington.

The alliance supports progrowth policy principles that, if properly pursued at the federal and state level, would put our nation on the path back to prosperity by empowering and encouraging small business—the engine of our economy.

Politicians in Washington can also take note of what small business owners themselves are saying. In the newly released Thumbtack.com/Kauffman Foundation Small Business Survey, entrepreneurs ranked states and cities on their overall friendliness to small business. The results are telling. Those states where would-be job creators are subjected to burdensome, confusing, and costly regulations were ranked among the least friendly to small business. My former home state of California, for example, received an "F" for its business-friendliness on a broad range of regulations, ranging from health and safety to licensing and employment regulations. Coupled with having the second-least friendly tax code in the country, it’s no surprise that California is at the bottom of the list. My new home state of Texas, on the other hand, got an A+ for overall small business friendliness, with an A in every regulatory category and for friendliness of the tax code.

At a time when economic data continues to point to a long road ahead before the unemployment rate returns to prerecession levels, job creation must be the top priority for every policymaker and elected official at every level. Instead of going down the path of bigger government and more regulations, which has failed to stimulate job creation at the state level, Washington should roll back the regulatory onslaught and unshackle small businesses so that they may do what they do best. To put it simply: Washington should be more like Texas, less like California. Removing the hurdles to job creation imposed by the government’s overreach would help jumpstart national economic growth, making the road to recovery a little less of a reach.

The unemployment rate, which is now hovering at roughly 8 percent after peaking at more than 10 percent in 2009. 

But it's not because thousands are going back to work, it's because thousands are throwing in the towel.

Political pundits love to obsess over the unemployment rate. “Can President Obama win reelection if unemployment stays above 8 percent?” “What number for unemployment is bad news for the president, and what number helps him out?” But that talk is detached from the reality of the economy. Small businesses around the country know that there’s still an employment problem, even as the official unemployment rate drops from a high of 10.1 percent in 2010 to 8.1 percent today.

From my time talking with fellow small business entrepreneurs around the country, I’ve seen that times are still tough. But that doesn’t seem to match up with the changes in some of the official statistics, most notably the unemployment rate. The rate drops and drops—even when the jobs reports come back with disappointing numbers! Small business owners are wondering, “What’s going on here?”

What’s going on really gets at some of the limitations of the statistics we’re using. The unemployment rate is simple to explain, but it’s not telling the whole story. The problem with officials citing the unemployment rate, and pundits counting on it to inform their predictions, is what it leaves out. The model is not reflecting the experiences of real Americans who are struggling.

The difference between statistic and experience is exposed when you look a little deeper, at the participation rate. The unemployment rate only factors in the labor force: people who are either working or actively looking for work. If you’re not actively looking, you don’t count toward the unemployment rate.

The participation rate, on the other hand, asks how large the labor force is compared to the total population. And the participation rate has been dropping steadily, and is now at its lowest level in more than 30 years! Nearly 4 million Americans have just left the labor force, representing both a drop in the unemployment rate—and continued pain in the lives of real people.

Keith Hall, the commissioner of the Bureau of Labor Statistics from 2008 to 2012, wrote for US News and World Report, “Since the start of the recession we have also encountered the largest disengagement from the labor force in more than 60 years. . . Unfortunately, labor force disengagement is entirely responsible for the nearly 2 percentage points decline in the unemployment rate from 10 percent to 8.1 percent.”

The Wall Street Journal editors offered a few theories as to why the participation rate continues to drop:

• Demographics. America’s population is aging, as we all know, and more Americans who are still considered in the working age group are old enough to retire.
• Slow Job Growth. Because the recovery has featured slower job growth than expected, there has been little incentive for people who left the work force to come back. And older workers who lose their job might choose to retire rather than fight for one of the few available jobs.
• Low Wages. If wages for available jobs are not high enough, second-income workers might decide it’s more worthwhile to stay home.
• Entitlements. Government entitlement programs have expanded dramatically in the last decade, including Medicare, disability payments, and food stamps. Some potential workers might be disincentivized to rejoin the labor force, because they would lose these benefits.

We get very little say in where our tax money goes. Elections are normally infrequent: when they do come, we are not voting on individual spending programmes but on a whole package of proposals that could include issues as diverse as immigration, schools, healthcare, welfare, unemployment and defense. On such infrequent and confused evidence, the politicians who decide where our money is to be spent cannot have any clear idea of what the public’s priorities really are, and of the depth of feeling that different people have about those priorities. 

But our legislators and officials have priorities of their own. People do not suddenly become angels when they are elected into office or start working for a government agency. Officials want to protect their own budgets, and politicians are inclined to steer resources towards their own supporters. Who really believes that every government decision is made ‘in the public interest’? The more taxpayers’ money that flows through that decision-making process, the more power is given to politicians and officials to indulge their personal and political interests.  

Much public spending actually amounts to vote buying, with grants and subsidies being steered to particular groups that are favoured by the ruling party. Interest groups take full advantage of this, lobbying for special legislative favours for their cause or their industry, often in return for election funding or other inducements. Such favours can be extremely lucrative, perhaps involving tax concessions, subsidies or regulations that make life harder for competitors: so it is not surprising that lobbying is such a big industry. And the higher that tax rates are, the bigger are the potential rewards from getting special tax treatment, and the larger the lobbying industry grows. High taxes, as they say, feed big government rather than hungry children. 

As the H L Mencken put it, “elections are advance auctions for stolen goods”. Interest groups of all sorts are out for the favours that the politicians of a large government are able to grant them. The only group that seems to be under-represented in this carve-up of taxpayer funds is, unfortunately, taxpayers themselves. 

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Eamonn Butler is director of the Adam Smith Institute and author of The Best Book on the Market. In his next piece, he explains why high people so often regard taxes as unjust.  

The American Institute for Growth believes that small businesses are the engine of the American economy, creating the majority of all new jobs in recent decades. That's why the alliance has consistently advocated for small businesses and been the voice of the entrepreneur in the public debate about how we get our economy growing again and jumpstart the American jobs machine.

If small business is the engine of the American economy, then credit is the gas that allows it to accelerate and move forward. Without credit or lending, the dynamic potential of our businesses is dampened and growth is crippled.  According to the Small Business Administration's Office of Advocacy, small businesses rely heavily on bank investment in their projects (aside from the entrepreneur's own capital) in order to get their enterprises off the ground, averaging about $80,000 a year.

Policymakers, business leaders, and entrepreneurs alike all agree on the importance of business lending, yet policy responses to the financial crisis and the Great Recession have made the kind of lending that would get our economy growing again harder, not easier. Essentially, Congress's response to the financial crisis was to punish banks on Main Street for the bad decisions made on Wall Street—and it has stifled the kind of financing that businesses desperately need to keep the lights on, much less hire more workers. It's not hard to understand: As federal regulators make it more difficult for banks to give out loans to businesses, job creation grinds to a halt.

As fellow American Institute for Growth leader John Allison has said on numerous occasions, banks are being forced to deny loans that they would otherwise give for no other reason than federal regulatory requirements—loans that would undoubtedly put more people back to work. This is a problem that has persisted since the financial crisis; in 2009, the Kauffman Foundation found that 89 percent of businesses who were denied loans attributed it to more stringent lending requirements. And it hasn't gotten any better—just this week, the Federal Reserve's quarterly survey of senior loan officers found that only 7 percent of banks have eased credit standards for big businesses and none have made it easier for small businesses to borrow .

That's no way to get an economy growing or jobs created again.

Lending standards are being increased across the board, making it tougher for the real job creators. Standards need not be lowered to improve the environment for small business loans. No one is advocating that banks not exercise reasonable restraint and due diligence. But there needs to be more emphasis on how well local banks are serving local businesses—and so long as banks are only concerned about federal regulators and not about investing in their community, our recovery will continue to sputter.

This editorial also appeared in US News & World Report. 

There's nothing at all bad about internships, but when the job market is this soft some employers take advantage of young college grads.

Confronting the worst job market in decades, many college graduates who expected to land paid jobs are turning to unpaid internships to try to get a foot in an employer’s door.

While unpaid postcollege internships have long existed in the film and nonprofit worlds, they have recently spread to fashion houses, book and magazine publishers, marketing companies, public relations firms, art galleries, talent agencies — even to some law firms.

Although many internships provide valuable experience, some unpaid interns complain that they do menial work and learn little, raising questions about whether these positions violate federal rules governing such programs.

Yet interns say they often have no good alternatives.

As Friday’s jobs report showed, job growth is weak, and the unemployment rate for 20- to 24-year-olds was 13.2 percent in April.

Read the full story here.

Economists expect to see the unemployment rate hold at 8.2 percent, when the report is released at 8:30 a.m. ET Friday. Wall Street is bracing for disappointment after March’s small 120,000 gain and a recent string of weak economic data.

For instance, a survey Thursday was a bit lighter than expected, and the employment index in the service-sector survey slipped 2.5 points to 54.2. Even so, economists say one place the jobs number could deliver an upside surprise could be in retail.

Editor's Note: This is part three in an exclusive series by Dr. Eamonn Butler on the morality of taxation. 

 Most people are willing to make sacrifices to educate their children, look after their elderly relatives, and improve their own job prospects.

But by eating into their financial resources, taxation reduces their ability to do these things – all of which would benefit the community as a whole, not just themselves. Although most of us want individuals and families to take more responsibility for their own lives and welfare, tax makes it harder for them to do so.

Indeed, taxes may convince people that they have no outstanding social obligations at all. We are told that our taxes will pay for vital public services such as education, police and infrastructure. And given the high cost of government services, they may well look at their tax bill and conclude that these services are being plentifully delivered. They conclude that their social obligations have been completely discharged – because they have paid handsomely for the government to do the job.

So they come to believe that it is up to teachers to make sure that their children are literate, numerate and well behaved, and that they need take no responsibility in this. They may believe that welfare programs clear them of any moral duty to help others who might need their help. They may walk on by when they see children being neglected or crime being committed, believing that these are the responsibility of the police and social services that their taxes pay for.

Tax also leaves people with less money to devote to charitable giving. Schools, hospitals, libraries, galleries, orchestras, care homes and other welfare charities have all benefited from the bequests of people who understand their importance to society and humanity; but high rates of lifetime or inheritance taxes inevitably leave people with less to give.

And when people believe that government will provide, they are less likely to fund good causes. A classic example was Britain’s Royal National Lifeboat Institution, which was created independently in 1824, but fell on hard times thirty years later. So in 1854 it accepted £2,000 in government grants. But for every pound the government put in, the RNLI lost thirty shillings (£1.50) in voluntary donations. People could not see why they should support a government-funded institution. So in 1869 the RNLI cut loose again, and has flourished ever since.

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Eamonn Butler is director of the Adam Smith Institute and author of The Best Book on the Market. In his next piece, he explains how taxation promotes the self-interest of the government authorities.

The middle class continues its decline, and it's a trend that goes back decades. A primary source of this is competition from lower-wage workers overseas and technological advances that allow factories and offices to produce more with less labor. Another major component is the heavy burden of taxation on job creators, and the enormous cost of regulations -- everything from stormwater runoff rules to Sarbanes-Oxley, Frank-Dodd and ObamaCare.

Here's what Bloomberg News is saying:

Barack Obama campaigned four years ago assailing President George W. Bush for wage losses suffered by the middle class. More than three years into Obama’s own presidency, those declines have only deepened.

The rebound from the worst recession since the 1930s has generated relatively few of the moderately skilled jobs that once supported the middle class, tightening the financial squeeze on many Americans, even those who are employed.

We at American Institute for Growth believe we have the answer to these challenges -- the changes we need to make to rebuild the middle class with good, high paying jobs and greater opportunities for rising entrepreneurs. 

We need to reform our tax code, we need to take away the regulatory uncertainty small businesses face, and we need a rational fiscal policy in our government. The American Institute for Growth's policy recommendations are a road map of how we can lead our nation back to sustainable, stable economic growth and prosperity for all.