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The 'tax hike = more revenue' myth
Posted By -NO AUTHOR- On 12/05/2012 @ 8:00 pm In Opinion | No Comments
By Giuseppe Gori
For years, Democrats have been masters at changing the language in political discourse.
The latest language change is using the word “revenue” as an euphemism for a tax increase.
Most political commentators, even those who are opposed to tax increases, are too willing to concede that a tax increase will generate more revenues. This is actually false, at this time.
To understand this, let’s take one of the many real-life phenomena that are not linear (i.e.: the more, the better all the time), but are described by a curve: At first “more” is good, but after an optimum point, the more, the worse the result.
Vitamin C (ascorbic acid) is good for you, especially when you get it from natural foods. If you do not eat any food with it, a 500 mg or 1000 mg pill is good for you, to integrate your diet. However, higher dosages become toxic. The more vitamin C, the more the toxicity. That is, the “return on investment” (ROI) after an optimum point becomes lower, and very high dosages can make you very sick.
Your mother must have told you (or you may have experienced) that too much of something “good” can be very bad for you.
In math, this concept is expressed by a curve, in which the vertical axis is the “return on investment” (ROI), and the horizontal axis is the “quantity.”
When the quantity of government increases, after an optimum point, which was reached in most industrialized nations in the late 1950s and early 1960s, the ROI decreases.
The STING curve below expresses this concept. The ROI in our case includes all the desirable things we want from government in society, which require money (government revenue) to be delivered.
The graph above shows that when governments become bigger than their optimum size, adding more government programs will reduce revenue: The resources, including people and money, required by government to deliver those programs are taken from the productive people in society. When fewer people produce wealth, the GDP is lower, unemployment increases, the tax base shrinks, and government revenue decreases.
If we continue to increase taxes, hire bureaucrats and expand government, we obtain less ROI, we lower the economic activity, reduce the GDP, increase misery and eventually cause society to collapse. The collapse generally includes serious economic difficulties for the people, and it is often accompanied by dictatorship. This has already happened in about 50 countries in the last century, while we had no example of countries with an oversized government doing well.
Unfortunately, even in the countries that are economically surviving, governments tend to fluctuate in the critical section of the curve, without ever returning within the optimum range.
Expose the Democrats’ game: Do not let commentators and pundits get away with associating the concept of increased revenue with increased taxation. At this time, one is the opposite of the other.
The “balanced” approach the U.S. needs in the current crisis is two-fold:
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