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).
Dan Mitchell once again using the Laffer Curve to educate others.
Brian Domitrovic offers a concise history of tariffs at Forbes.com:
A tariff “for revenue” was one where a rate was set low enough for the good in question to flow into the country in sufficient quantity to bring in increasing receipts to the government. A “prohibitive” tariff was one that was so high, receipts would go up if a rate were lowered. The “Laffer curve” concept was the most discussed theorem in political-economic debates in the United States in the 19th century.
Today’s Larry Kudlow radio program:
This is what we fight on a daily basis. Feel free to leave a comment if you are on Instagram: