Taxes don't win matches

Notes on Ch 5 - Taxes Discourage Production

This is the chapter where Hazlitt explains why it is unlikely that the wealth 'created' by government spending (see here) will fully compensate for the wealth destroyed by the taxes imposed to pay for that spending.

The government spenders tell us, for example, that if the national income is $1,500 billion then federal taxes of $360 billion a year would mean that only 24% of the national income is being transfered from private purposes to public purposes. This is to talk as if the country were the same unit of pooled resources as a huge corporation, and as if all that were involved were a mere bookkeeping transaction. The government spenders forget that they are taking money from A in order to pay B. Or rather, they know it very well; but while they dilate upon all the benefits of the process to B, and all the wonderful things he will have which he would not have had if the money had not been transferred to him, they forget the effects of the transaction on A. B is seen; A is forgotten. (p 37)

and the consequence for A goes like this:

taxes inevitably affect the actions and incentives of those from whom they are taken

So, for the company who is taxed (heavily), all it's losses are 100% losses and all it's gains are 40/50/60/70% gains (depending on the rate of tax). So it is hard, if not impossible, for it to offset its losses in bad years in the good years and as a result it will adopt a strategy that will minimise the possibilities of any losses (not expanding so fast, not trying new things, not employing more people, improving machinery and factories happen with less vigour etc.):

The result in the long run is that consumers are prevented from getting better and cheaper products to the extent that they otherwise would, and that real wages are held down, compared with what they might have been.

This effect is also seen for individuals and families:

People begin to ask themselves why they should work six, eight or nine months of the entire year for the government, and only six, four or three months for themselves and their families.

In conclusion:

In brief, capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

Economics in One Lesson - Henry Hazlitt