High Tax Rates Actually Cut Government Income

Beefs and Beliefs

Research shows cutting taxation really does increase business and enterprise -- and government tax revenues!

Published on: October 11, 2012

I remember many years ago thinking taxation was essentially a zero-sum game -- meaning if you raise taxes the government takes in more money; if you lower taxes the government takes in less money.

I was wrong.

I remember thinking in those days, although only in a vague sense, that wealth and money were somehow finite. There could only be so much in the world.

I was wrong about that, too.

I remember when presidential candidate Ronald Reagan said we could lower taxes and government income could go up. I couldn't understand how that was possible and so I scoffed.





I was wrong again.

Many of you know, by experience or by intuition, that taxes are a disincentive to production/profit. By personal experience and observation I have learned the more of my money you try to take via taxes, the more of it I'll try to shelter. If you raise my costs high enough via taxation, I will at some point deem an enterprise not worth the effort.

The  fact is, tax laws have likely turned more people into criminals than bad homes and abusive families ever did -- and that's a significant statement.

Tax breaks, on the other hand, provide a false stimulus to segments of industry/society. A great example is the tax breaks for mortgages and for interest on business loans. These things subsidize the banking industries and the homebuilding and real estate sales industries.

History tells us where tax law is concerned: "Pay me enough and at some point you will meet my price to make a purchase or undertake an endeavor."

Reductions in taxation, however, simply stop punishing people for enterprise. They improve the economic system without falsely stimulating it. They remove economic suppression and commerce blossoms.

Tax reductions during Ronald Reagan's terms in office and John F. Kennedy's term in office, and the Harding-Coolidge tax cuts in 1925 actually brought about increased business and economic activity and in turn increased tax revenues to the federal government.

Historically, that is one of the primary reasons why this nation did so well. It removed undue burden from a king/oppressor and set up laws to allow citizens to pursue profit.

I've been paying a lot of attention to such matters for many years now and so am always on the hunt for new information that helps define these arguments with some good sense and statistical basis.

The other day a friend sent me a link to a very good video which I've posted here. It re-examines the Laffer curve, named for professor Arthur Laffer who appears to have been the first to frame it into graphic form. This should not be as complex as brain surgery or understanding the riddles of DNA.

Even the father of modern quasi-socialist central monetary planning, John Maynard Keynes, understood this and wrote of it pretty clearly, as did a 14th century Arab philosopher named Ibn Khaldun.

But recently a pair of very influential and left-leaning economists, in this context meaning those who lean toward Keynesian/government manipulated economics, re-evaluated the Laffer curve. Christina and David Romer wanted to determine at what level tax rates begin to cut government revenue instead of bringing more in. Amazingly, they said the 30% level is as high as the government should tax if it wants to receive maximum revenue.

Certainly, the current President and U.S. Senate want far more than that. I say their actions are about power and not anything else, however. They use the arguments that once fooled me; the ideas that income is fixed and tax revenues are nothing more than a product of how much they charge us.

Study the logic of Arthur Laffer's ideas on taxation and enterprise. They are clearly worth understanding.