While perusing Instapundit, I came across a post suggesting that President Obama thinks investment will suffer if government takes 20 percent of a company’s income. At first I thought this was a form of satire, but there is a real link to a speech that the President gave to the Parliament of Ghana. Indeed, the speech has several good comments:
Development depends on good governance. …Repression can take many forms, and too many nations, even those that have elections, are plagued by problems that condemn their people to poverty. No country is going to create wealth if its leaders exploit the economy to enrich themselves… No business wants to invest in a place where the government skims 20 percent off the top… No person wants to live in a society where the rule of law gives way to the rule of brutality and bribery. That is not democracy, that is tyranny, even if occasionally you sprinkle an election in there. And now is the time for that style of governance to end.
My initial reaction, focusing on the passage about 20 percent being too much for government, is to ask why Obama wants higher tax rates in America? After all, he wants American small businesses to pay 40 percent, which is twice the burden he thinks is excessive for Ghanians. Upon further reflection, though, I wonder if the President is referring to corrupt bureaucrats asking for bribes. But, even if that is the case, why does that matter? Investors and entrepreneurs care about the amount of disposable income that is generated by an investment. Losing 20 percent to the tax collector has a negative impact on incentives, regardless of whether the money winds up in Treasury coffers or a bureaucrat’s pocket. In any event, it is good to see that the President recognizes that the economy suffers when government becomes too much of a burden. We just need to figure out how to convince him that the laws of economics work the same way in America as they do in Ghana.