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Monday, August 20, 2012

Whipping the Fast Ox

In his book, The Commanding Heights, Daniel Yergin discusses China’s long march toward free markets that began soon after Mao’s death.  Discussion within the Communist Party included this assessment of progressive taxation:

[I]t was argued that the way the state collected revenues from enterprises ended up “whipping the fast ox”–that is, punishing firms that were more efficient.  The higher the firm’s profits, the greater the proportion of profits that went to the government.

Three decades ago there were those even in Communist China who understood that it is counterproductive to punish people for better performance.  The French may soon learn this lesson as well.  President Hollande’s threat to impose a 75 percent tax on income above a million euros is leading some wealthy French to consider leaving their country.  Here in the United States an estimated 2,000 high wage earners are fleeing California’s high taxes each week.  The wealthy are avoiding other high-tax states as well; capital and talent tend to migrate to states that do not punish success.

Whipping an ox for working hard may increase production for a time, but eventually the poor, confused beast will either lie down or run away.

  • Richard Fulmer is a freelance writer from Humble, Texas, and the winner of the third annual Beth A. Hoffman Memorial Prize for Economic Writing for his article "Cavemen and Middlemen," from the April 2012 Freeman