All good lessons in life return to the Laffer Curve. Kudos to Richard Rahn in his Washington Times column today.
All governments tax and engage in some redistribution. Most taxation is coercive and enforced by the police powers of the state. And most people understand that some limited taxation and government is a price to be paid for a civil society. Implicitly people understand that government can be an effective means for protecting private property and person, and those basic functions need to be paid for.
Few object to a tax rate of 10 percent, and such a low rate has only a small disincentive effect on the willingness of the productive to work, save and invest. But as the tax rate increases, the disincentive effect also increases eventually to a point where the productive withdraw so much of their labor and investment that tax revenues actually fall (as illustrated by the Laffer Curve).
It is also well known that as government spending grows as a percentage of national income, it tends to both discourage personal responsibility for one’s economic well-being and becomes less efficient in how it is used, eventually resulting in negative economic growth (such as being experienced in Venezuela at the moment).
Steve Moore was interviewed by John Catsimatidis this morning.