On Taxation

Taxation, gentlemen, is very much like dairy farming.  The task is to extract the maximum amount of milk with the minimum amount of moo. -Lord Havelock Vetinari, Jingo

With the last post on the Budget and Taxes, I breezed through some ideas which, in retrospect, I should have spent more time.  One blog post is not enough to cover all of them, and there are other subjects I will be addressing, but I will try to get back to them as I can.  The first of those is the false idea too many have that tax rate is somehow directly commensurate with tax receipts.

The idea seems to be that the higher a tax rate, the higher the government's income.  This is false, and has been proven so over and over again.  Whether from sales taxes, or income taxes, or tariffs, the government usually takes in less money when taxes increase and more money when taxes decrease.  An economist named Art Laffer was perhaps the most famous, in recent memory, to describe this phenomenon, and economists talk about it appending his name to the idea to which he gave voice: the Laffer Curve.

Laffer's idea was that the intersection of tax receipts and tax rates exists on a curve.  That at very high or very low rates, the government always receives a small amount of revenue, while somewhere in the middle taxes bring in the maximum amount of money.  As Lord Vetinari would say- they bring in the maximum amount of milk with the minimum amount of moo.

Democrats, however, seem to believe that taxation exists on a line.  They seem to believe that as the tax rate goes higher, the amount the treasury receives also climbs.  This is despite several decades worth of evidence to the contrary.  Most recently, when George W Bush cut and consolidated tax rates in the early 2000's, revenues to the treasury soared.  "Record Revenue" was a phrased used more than once.

Yet Democrats' only answer to rising deficits, to "unfairness," and to a host of other ills- real or illusory- is to raise taxes.  They talk about tax cuts in terms of "cost to the government," as thought that money is the government's by right, and you're lucky they are letting you have any of it.  They talk of tax increases on the group of people already paying around 50% of the nation's total tax burden as "fair."

Granting them mere ignorance on the issue, that ignorance is inexcusable.  Yet they also seem determined to let us know that it is not mere ignorance.  Whenever they talk of raising taxes on specific items, like gasoline or cigarettes, or alcohol- the reason there is always the same: to help limit consumption. 

So, on excise or sales taxes, at least, they seem to understand that higher taxation modifies behavior.  Yet they claim not to know the exact same thing about taxes on income.  This is either the most stark example of cognitive dissonance in current practice, or deceit on a breathtaking scale.  Either they truly do not understand that my income is mine, and the government is taking some of it- in which case they view us all as servants of the government, or they do understand that, but would rather play demagogic games in order to exert more power and control.

In either case, they are not suited to wielding the knobs and levers of an area of such importance to normal families.