One point that tax'n'spend politicians overlook: beyond a certain point, tax increases result in revenue decreases.

• Why should I hold down that high-stress job if it puts me in a tax bracket where the government confiscates most of my salary? Take a low-stress job, pay no taxes, and wind up with almost the same net income.
   
• Why pay Acme Plumbing to install the new toilet in your hotel, if you have to pay an extra 20% to the government? Invite your good friend Bob-the-plumber to spend a relaxing weekend visiting (free vacation for him); when he leaves, somehow the toilet has magically installed itself. While barter is theoretically taxable, there is no realistic way this can be enforced.
   
• Wealthy people and corporations have a vast array of options to protect their income and wealth - not least of which is to simply leave.

Just from the feel of things, I think our current total tax rates have already passed the tipping point. People are simply not willing to pay more. Increasing taxes will result in decreasing revenues.

Continued high taxation risks establishing a permanent culture of tax evasion like you see in Italy - by some estimates, more than half of the Italian economy is underground, which opens the door to massive corruption and organized crime.

What Bradley said.

What Crid said.

What Amy said.

Seriously though - this is the Laffer curve, which liberals don't believe in. Which is why they deny that what Bradley said is true.

Because if what Bradley said is true, it means that the Laffer curve is true, and since we know the Laffer curve isn't true, then Bradley must be wrong.

Being a liberal is so difficult, what with the circular reasoning and question-begging all the time.

Well, for the record, it's no indictment of conservatism –fiscal or otherwise— to acknowledge that Laffer was full of shit, and had a bad haircut besides.

Crid - At the very least, the Laffer Curve is an observable phenomenon.

At some level of taxation, tax revenues drop. It's counter-intuitive in the way that Ricardo's Law is. But it's still true. And the curve is all I really know of Laffer's work.

But if you want to see it in action, play Sim City some time. You can raise taxes, and it'll work for a little while, and then people start leaving, and your city goes to shit.

Kinda like Detroit.

"Why should I hold down that high-stress job if it puts me in a tax bracket where the government confiscates most of my salary? Take a low-stress job, pay no taxes, and wind up with almost the same net income."

Why take the high-stress job anyway, if you can be relaxed and happy instead? I'm so glad I never bought into the idea of having to live in a giant house and drive a new car - I'd still be a miserable slave to my bills. I've had those high-stress jobs before, waking up each morning dreading the rest of my day, and life is too short.

Being busy and somewhat stressed-out because you have a lot of responsibility and do meaningful work is one thing. (If you own your own business, you might feel this way.) However, most of us are stressed out at work because our bosses are jerks or because we deal with bureaucracy and busywork. Work is not meaningful or rewarding for most people - for the vast majority of us, it's just a way to put food on the table and you are lucky if you don't downright hate it. So now I do as little of it as possible and no longer care.

It stands to reason that something like the Laffer Curve has to exist. Consider: if tax rates are 0%, then tax revenue is zero, obviously. If tax rates are 100%, then revenue is also zero, or very close to it, because under that condition economic activity is impossible. And obviously, in between are percentage values where revenue is (considerably) greater than zero.

The only question is whether the resulting curve has a single maximum or multiple maxima. During the Reagan years, when Laffer was getting a lot of notice, the liberal claim was that the curve has multiple maxima; further, it is impossible to know where the maxima are, so you may as well raise taxes since the odds are that it won't hurt and might help. But, if you accept that the maxima are unknowable, the same argument can be made to decrease taxes. So it's an argument that doesn't go anywhere.

I don't have enough training in economics to know for sure if there is one maximum or multiple. However, I would argue that Occam's Razor indicates that there should only be one: in order for there to be multiple, markets would have to be subject to a whole slew of non-linear factors (things which, when there is a slight change in demand for a good, cause the price of that good to increase or decrease exponentially), and Econ 101 says that generally isn't the case.

I would also argue that we are on the back side of the curve now. For the past three decades, each federal income tax decrease has resulted in an increase in revenue, where each increase has resulted in, at best, flat revenue. The Clinton tax increases in his first term did not increase government revenue, even though they occurred during the recovery period after the 1991 recession. Revenue only recovered after total economic activity caught up over the next few years, combined with the fact that gridlock government flattened out the government spending curve somewhat during Clinton's second term.

So where is the maximum? Taking a wild guess, I think it's in the 10-15% range. This is for total economic activity, taking all taxes into account. It stands to reason that some types of taxes will better optimize than others, but I'm not enough of an economist to really get into that. Further complicating the picture is regulatory cost of compliance, which can be considered an indirect form of taxation; compliance doesn't create revenue per se, but it has the same negative effect on productivity as taxation does. Reliable numbers on cost of compliance are hard to find.

Cousin Dave, I'm not an economist either, but wouldn't be surprised if there might be different "sweet spots" on the Laffer curve for different types of economic activity. I really don't know, though. However, finding that sweet spot is important only if you view taxes only as a means of funding government operations. Clearly in that case you'd want to maximize economic activity in the private sector to maximize funds available to the public sector.

However, if you view taxation as a means of redistributing resources, or, more sinisterly, as a punitive measure against activities or people you don't like, then the sweet spot on the curve is less important. Knock yourself out; raise the taxes as high as the voters allow (and make sure you don't directly clobber the folks voting for you or funding your campaign).

Does anyone remember the Yacht Tax of 1990?

Basically they destroyed the U.S. yacht industry by doing a 10% tax on any over $100K. So all the rich people went to Europe or bought used that weren't subject to the tax.

The same thing applies to any tax.