Property Taxes Impede the Creation of Capital; Capital Consumption Is Detrimental for both Property Owners and Workers

The second questionable principle is the preference for direct taxation—those taxes that are assessed on “property”—over indirect consumption taxes. Over many years, the inflammatory rhetoric of the Social Democrats has succeeded in spreading the view that taxes on commodities of mass consumption should be opposed, but that levying “taxes on property” does not affect the interests of the workers. The leaders of the Social Democratic party always talk about “gifts” for entrepreneurs whenever property-tax reductions are proposed. In reality the situation is quite the opposite. Property taxes impede the creation of capital. And when the taxation of enterprises goes too far, it results in the consumption of capital. To a large extent, this has been the case here in Austria for the last eighteen years. Capital consumption is detrimental not only for the owners of property but for the workers as well. The more unfavorable becomes the quantitative ratio of capital to labor, the lower is the marginal productivity of the work force, and, consequently, the lower are the wages that can be paid. That the Austrian economy is only able to compete and survive on the basis of the relatively low wages that are paid today is primarily due to the fact that very significant amounts of the capital belonging to Austrian entrepreneurs have been eaten up during the past eighteen years.

--Ludwig von Mises, "Adjusting Public Expenditures to the Economy's Financial Capacity," in Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression, ed. Richard M. Ebeling, vol. 2 of Selected Writings of Ludwig von Mises (Indianapolis: Liberty Fund, 2002), 242-243.