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On Tax Cuts and Private Enterprise

In my latest column for AIER I do my best to bust a popular myth about tax cuts and to point out the very limited meaning of “private” in “private enterprise.”

The free market is private only in the sense that decisions of what and how to produce are made by individuals spending their own resources rather than by government officials spending other people’s resources. But in a free market any entrepreneur or investor who produces and invests only to directly satisfy his or her own private desires – any entrepreneur or investor who disregards the desires of the public – will not long survive as an entrepreneur or investor.

Lady Gaga earns millions of dollars annually not because performing gratifies her directly, but, rather, because her performances please millions of people (nearly all of whom are strangers to her) so much that each of her fans willingly pays her to perform. Jeff Bezos is a multibillionaire today not because he finds great personal satisfaction in doing online retailing, but, rather, because his online retailing skills and efforts satisfy the desires of hundreds of millions of us in the general public. Warren Buffett’s net worth exceeds $100 billion today not because he has a personal, noneconomic attachment to the companies in which Berkshire Hathaway invests, but rather because he is unusually skilled at directing resources to companies that are themselves skilled at producing goods and services that are eagerly purchased by countless members of the general public.

In the market, economically profitable (and, hence, taxable) activities are overwhelmingly those that successfully improve the welfare of the general public.

Ironically, the only truly private enterprises are those that exist and survive because of special privileges granted to them by government. The cane-sugar farmer in south Louisiana or Florida acquires his hefty income not by satisfying the general public, but instead because we in the general American public are obstructed by our own government from buying imported sugar. The U.S. government harms the public in order to bestow unearned riches on American sugar farmers. Only through such interventions as protective tariffs, subsidies, and occupational licensing restrictions are owners of firms able to satisfy their own private desires without having to satisfy the desires of the general public. Only through such interventions are the ‘profits’ and incomes of protected producers extracted from the general public rather than being the rewards for contributing to the general public.

Ordinary men, women, and children will prosper only if, and only to the extent that, truly productive activities are not unduly discouraged by taxes and other government interventions. Income, corporation, and capital-gains taxes are taxes on the general welfare. Also harmful to the public welfare are protective tariffs and similar restrictions on how people may peacefully spend their own money.

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