Lack of innovation and investment

Abraham Lincoln said: “You cannot strengthen the weak by weakening the strong. You cannot help the wage earner by pulling down the wage payer. You cannot help the poor by destroying the rich. You cannot help men permanently by doing for them what they could and should do for themselves.”[[http://thinkexist.com/quotation/you-cannot-strengthen-the-weak-by-weakening-the/821892.html]] Investment like people is mobile, and with globalisation becoming more global. There has been a particular trend of outsourcing jobs and investment over the last few decades. As tax is a cost to the rich businessmen it is likely to create more outsourcing. The rich are the wealth creators of the country, the innovators, inventors and investors, scare them away and they will no longer invest in the country. Most of them are hard working and because they are mobile will be very sensitive to tax changes.[[Harry Phibbs, Piling taxes on the rich will hit the wrong people - and raise diddly squat, MailOnline, 24th March 2009, http://www.dailymail.co.uk/debate/article-1164123/HARRY-PHIBBS-Piling-taxes-rich-hit-wrong-people--raise-diddly-squat.html%5D%5D Overall the level of taxation has an inverse relationship to the level of economic growth. This is because the investors do not feel as rewarded for their investment if they cannot gain most of the profit, they want to know why the government which has often done very little to help them should gain the benefit of their investments through taxation when the economy is already gaining through higher number of jobs. The higher the tax rate the higher the rate of return investors will require for their investments and the less they will pay for a given investment. In the US from 1997 to 2007 the non-income tax states had 21% job growth compared to 11% job growth in the high income tax states. Also Personal income grew by 84% in the non-income tax states, versus 64% in the high income tax states. This is most severe where there is a progressive taxation regime i.e. higher taxes on the rich than on the poor. According to a Joint Economic Committee of Congress report in 1982 “Income taxes levied on individuals and corporations are particularly detrimental to growth... Progressive taxation not only lowers the rate of economic growth compared with proportional or regressive taxation, but in the process hurts the very persons that progressive taxes are designed to help: The poor.”[[Arthur B. Laffer, Stephen Moore & Jonathan Williams, Rich States, Poor States, American Legislative Exchange Council, (Washington, 2009), pp.34-36, http://www.alec.org/am/pdf/tax/09RSPS/26969_REPORT_full.pdf%5D%5D Tax has a similar effect on the stock market, if the rich are being taxed more on their income they will have less to invest on the stock market. Moreover if returns from investments (capital gains) are counted as income then the higher the tax rate the fewer investment opportunities there will be that meet the new required higher level of return.[[Daniel Obrycki, Rafael Resendes, Tax the Rich, Starve the Poor, Real Clear Markets, 24th January 2008, http://www.realclearmarkets.com/articles/2008/01/tax_the_rich_starve_the_poor_1.html%5D%5D There will therefore be less trading and investing and companies stock will be worth less, which in turn reduces the amount of capital in the country reducing investment. Overall as higher taxes equals less investment which in turn equals lower economic growth then the consequences of raising taxes are negative. This lower growth will mean less jobs so more are out of work, while those in jobs get lower pay increases. There is less building of infrastructure such as roads and railways, less choice in services such as banking and education, and less exciting new innovations such as debatewise!