Taxes kill innovation and development and generate unemployment.

There is one factor that makes it unlikely that the wealth created by state investment will fully compensate for the wealth destroyed by the taxes received and destined to the payment of those investments. It is not simply, as is often assumed, to take something from the right pocket of the nation to put it on the left. State investors tell us, for example, that if national income amounts to 100,000,000,000 dollars (they are always generous in setting this figure), a tax of 25,000,000,000 dollars a year means to transfer only 25 per cent of private purposes to public purposes. This is to speak as if the country were a gigantic mercantile enterprise and as if such operations involved mere accounting notes. State investors forget they are taking taxpayers' money to hand it over to the state. Rather, they know it very well; but in so far as they allude to the benefits that the process reports the State and refer to the wonderful things that it will enjoy and that would not have dreamed if the money had not been delivered, they ignore the consequences that the taxpayers will have to bear. They see only the state and they forget the taxpayers.

Generally not equal to all people equal percentage of personal income tax. The largest tax burden is on a limited taxpayer sector and this income tax has to be supplemented by other types of taxation. Such exactions inevitably affect the actions and incentives of the people who have to bear them. When a company loses one hundred cents for every dollar lost and is only allowed to keep sixty of every dollar earned; when it can not compensate for its years of losses with its years of profit, or can not do so adequately, its line of conduct is disturbed. It does not intensify its commercial activity, or if it does, only increases those operations that involve a minimum of risk. Those who realize this reality are withdrawn from starting new companies. Thus, established entrepreneurs do not create new sources of work or do so to a minimum; many decide not to become entrepreneurs. Improvement of machinery and renewal of industrial equipment occurs at a slower pace, and the result, in the long run, is to prevent consumers from acquiring better and cheaper products, thereby lowering real wages.

A similar effect occurs when personal income is taxed at 50, 60, 75 or 90 per cent. People begin to wonder why they have to work six, eight or ten months of the year for the Government and only six, four or two months for themselves and their families. If they lose the full dollar when they lose, but can only keep a part of it when they win, they conclude that it is foolish to risk their capital. In this way, available capital decreases in an alarming way. It is subject to taxation even before it is accumulated. In short, the capital capable of promoting private business activity is prevented, in the first place, from existing, and the scarce accumulated is discouraged to undertake new business. The public power generates the unemployment that he wanted so much to avoid.

A certain tax burden is, of course, indispensable to fulfill the essential functions of any Government. Reasonable taxes, adequate for these purposes, do not seriously interfere with production. The public services they offer in exchange and otherwise safeguard the production itself, mean more than enough compensation. However, the greater the percentage of national income absorbed by tax burdens, the greater will be the deterrence exerted on production and private activity. When the total tax burden exceeds tolerable limits, the problem of seeking new taxes that do not discourage and hinder production is insoluble.

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Here's an interesting clip from the TV show The West Wing.