I periodically explain the principles of the Laffer Curve, particularly in hopes that I will educate lawmakers that higher tax rates are a bad idea – even if they wind up generating additional revenue.
Obama’s proposed class-warfare tax hikes, for instance, might pull in some extra loot for the political class to redistribute. But is it a good idea to give the politicians more money if the economy loses $5 of private output for every $1 of added tax revenue?
This is why it is never a good idea to even think about setting tax rates near the revenue-maximizing level.
Sadly, many leftists don’t recognize this tradeoff. They act as if the private sector is some never-ending pinata that is forever capable of disgorging more money if subjected to enough beatings.
But parts of the federal government are waking up to reality. Here’s some of what the Government Accountability Office discovered when investigating the impact of some tobacco tax hikes implemented a few years ago.
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