Tuesday, March 13, 2012

Taxing Economics

    One of the things that government planners tend to ignore (when devising new ways to take our money) is human action. Rather, they ignore it when reporting the projected consequences of their tax plans. For every new tax there is a corresponding report detailing how much extra 'revenue' the government is going to take in and how it will avert certain disaster. These reports are built on certain assumptions that the politicians craft to insure said reports are filled with favorable results.
    Unfortunately, these assumptions are generally erroneous. Erroneous might be a bit tame; blatantly false is probably a better term. If the plan is to tax a certain product, e.g. soda, the assumption is made that people will continue to purchase soda in the same volumes. Obviously this is a poor assumption. Levying taxes on soda will raise the price and that higher price will result in decreased consumption. If the consumption of soda decreases the actual revenue generated by the new tax can't match the amount projected using false assumptions about that consumption. Taxes themselves are a form of consumption. The product of taxes is government. The obvious difference between soda and government: you can choose not to buy soda.
    Another dangerous assumption used by politicians (particularly Progressive politicians) is that income taxes don't affect the behavior of citizens. For the middle class, income taxes reduce the amount that can be saved or spent on consumption. For the oft maligned rich, the taxes will alter investment and saving behavior. If the taxes become too onerous, those in the upper brackets will either move their money out of the country or stop producing as much and drop into a lower tax bracket. None of these results are good for anyone. Decreased consumption and saving leads to decreased demand which, in turn, leads to decreased production of goods. The rich moving their money results in less investment, which will also lead to decreased production.
    The safest assumption we can make as citizens is that the government isn't telling us the whole story or, in some cases, is flagrantly lying to us. Politicians get away with travesties like this because we let them. We continue to elect people who deliberately lie to us. If we want to end the dishonesty we must question everything. We must force politicians to tell the truth. It isn't in their nature to do so otherwise.

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