Matt Yglesias considers, and rejects, the notion that taxes on the rich impede capital formation:
As Ed says, the argument is that "we can't have progressives taxes because somebody's rich uncle might not have the wherewithal to subsidize somebody's business start-up."
I'm not going to dignify this with a response. I'll just note that Schramm is president and CEO of the Kauffman Foundation and I believe he was in the room when I first heard the "rich uncle" argument, so I may have been present at the creation of this particular talking point. Meanwhile, the crippling long-term budget deficits that will result from refusing to raise new revenues are not going to be doing any wonders for entrepreneurs. And perhaps more directly to the point, the lack of a guarantee of affordable health coverage is a major impediment to entrepreneurship in the United States. The status quo systematically discourages talented, skilled people form leaving jobs at existing firms in order to strike out on their own, and this is one of the things the administration is trying to address in its budget proposals.
It sounds deep and smart when you call it "capital formation", and stupid and crazy when you call it "the rich uncle argument", but they're essentially the same thing. And it should be noted that many, even most, liberals believe that this is true--or at least, they used to, back when they were discussing the Bush tax cuts. At the time, the ground was thick with liberals complaining that it was a terrible idea to cut taxes on the rich during a downturn, because the rich save their money, while the poor and the middle class spend it.
Then or now, saved money is where all the capital that funds startups--or any other sort of investment activity--comes from.
Of course, if we will have a government, we are going to have to tax someone to fund it, and the rich have more spare cash in their possession than anyone else. But of course, when we tax the rich, they don't just cut back on their yachts; they also cut back on their saving and investment activity, which in the long run means that we will all be a little poorer. Life is full of tradeoffs that can not be vanquished with even extremely biting sarcasm.
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