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).
Read the entire editorial here.
Amity Shlaes: Lousy Lawmakers, Not Low Taxes, Created Our Woes
Richard Rahn: An inconvenient economic history
Record shows recovery results from tax cuts, not government spending
Thanks to Larry Kudlow for this:
The “real do-gooders,” in the sense that their actions really do alleviate poverty and make life better for their fellow man, are entrepreneurs who create real jobs, goods and services that make our lives better, and those political leaders who have reduced unnecessary regulations and strengthened property rights, such as Margaret Thatcher, Ronald Reagan and Mart Laar (the former Estonian prime minister who led the reforms in his country)…
Governments cannot create jobs; they can only destroy jobs in the private sector by increasing taxation on the productive to create a “new government job.” Many of those who attack Wal-Mart or other business people for not paying “high enough” wages, or the rich for not paying “enough” in taxes, have never created a productive job in their lives, nor have they ever had the imagination or energy to create any new good or service to make our lives better. Yet, they often refer to themselves and are indeed called “do-gooders.” What a perversion of the language.