Punishing the victors of capitalism risks destroying the entire economy
Or what about Left Bank Pictures which won all of these awards for making The Crown? It hardly seems fair to the producers of Emily In Paris to make televisions this smart and stylish. Surely they should pay some form of additional tax?
Here is the problem, however. While you can make plausible arguments for any specific one-off tax, especially in the midst of a crisis, once you add them all up they will start to seriously damage the functioning of the economy. There are three reasons for this.
First, a free market system depends on incentives. Investors take a risk with their capital, and if they succeed, they make money, and if they get it wrong, they lose it. If we start taxing everyone just on the basis of extra profits, we destroy that. We will have created a “government wins, you lose” economy, and it’s hard to see why anyone would want to take these risks.
Second, a market depends on precise price signals. Rising prices are a way of telling companies that they need to do more of something, and they will do it in a few months, as long as the incentive to do so remains in place. But if punitive levies are imposed on profits, those signals disappear and very quickly we find ourselves in permanent chaos.
Finally, we already have a tax system so cluttered with unnecessary burdens that it creaks under the weight of its own complexity.
It is very easy to impose a windfall tax, but much more difficult to repeal it. Is it over with when is the pandemic over? Or when the energy crisis is over? No one really knows. In reality, the treasury will continue to collect the money for as long as possible – and the tax system will become even more impractical.
Indeed, “excess profits”, such as they are, encourage companies to reinvest in more capacity. If they persist, they simply attract more competition, and then – oddly enough – the “windfall” profits disappear.
We already have a very progressive tax system. Individuals pay higher rates as soon as they start making more money, and businesses that make larger profits pay much more corporate tax than those that earn next to nothing, and executives and shareholders also pay higher taxes on their bonuses or dividends.
If we punish all forms of success and prevent businesses from making money, then we can hardly be surprised if the whole system starts to crash – and we will end up with a permanent supply crisis instead of ‘a crisis that will be resolved relatively quickly.