The Laffer curve for next year looks different than the Laffer curve for five years from now and yet different than the Laffer curve for ten years. The longer the time horizon the earlier the Laffer peak moves. This is because as the time horizon increases the impact of compounding growth (or lack thereof) starts dominating the tax revenue equation.

So the Laffer curve for tomorrow is indeed a flat line, the way statists dream it! If tax rates go to 100% tonight then I will still go to work tomorrow, and so will most people. I may not be at work a week from tomorrow, or a month or a year later, but I will still go to work tomorrow — at least until I can figure out how permanent and irreversible this new total confiscation regime is.

In the long term, the Laffer curve asymptotically converges to the Rahn curve. You can call this “Zorba’s lemma”. This is because, in the long term, the main component of tax revenue becomes compounding growth. In other words, tax rate is a fixed coefficient while growth — which is negatively impacted by taxation — is an exponent. And given enough time to compound the exponent always dwarfs the fixed coefficient.

This the reason why low tax Switzerland raises a lot more per capita tax revenue than neighboring high tax France — and Singapore probably raises more per capita tax than distant Greece.

Now add to this the vicious cycle whereby the more an electorate suffers economic malaise the more it hates the remaining rich and the more it wants to tax them — and the more it views the state as its last hope — and you realize how destructive the dream of coercive collectivism becomes.

P.S. It is not only the IRS that screws. It is gang rape. All three hundred million voters screw. They are all both screwing and screwed. Coercive collectivism makes everybody rapist and victim at the same time. Our only advantage here in America is that we are not quite getting screwed as badly — and that is why we are still at the prosperity heights that we are — but for how long? We have entered the vicious cycle of statism / coercive collectivism. It won’t be long before we start voting like the French. Have you noticed the trendline?

]]>The economic costs of higher taxes are not small. What’s amazing is that politicians never seem to see the light and understand that them getting a 7.5% larger check at the cost of everybody else getting a 25% pay cut does not work for very long. ]]>