I’ve written about the Laffer curve before — this is a notional plot of tax rate vs. tax revenue. I assume that the Laffer curve is continuous and differentiable, and that it hits zero at both 0% and 100% taxation. Many people who dislike the implications of the Laffer curve insist that it could be wildly complex, with all manner of peaks and valleys and weird shit going on in between (the so-called “neo-Laffer curve“), but all that really matters, since Laffer’s function is a thought experiment, is that it has a maximum somewhere in the middle.
Push tax rates past that peak, and tax revenues go down. You’ll get less tax revenue than you would if you lowered taxes. This breaks people’s minds on a regular basis, but even the Keynesians are willing to admit that raising taxes sometimes doesn’t increase revenue — that sometimes it just drives your tax base away.
New York State just fell off the Laffer curve.
- Wisdom of taxing rich questioned (Times-Union)
This is an Associated Press article, so we begin with an invidious insinuation:
This year, the deep pockets of New York’s rich were tapped like never before. The state’s wealthiest pay new higher income tax rates, higher taxes for limousines and yachts, more to enter a horse in a race and more to dabble in real estate.
Okay, so we’re talking about rich people and their taxes, and Michael Gormley would love to have you believe that the rich are revolting because OMG TEH HORSE RACING IZ 2 XPENSIV!!!11one. (The factual content of the article tells a different story, but I’ll get there in due course.) And since this is an Associated Press article, we follow that up with a single-sentence paragraph:
Meanwhile, many are losing millions from the closing of business tax loopholes and those making over $1 million are losing tax deductions others get.
Business tax loopholes. Hmm. Aren’t we trying to reduce the unemployment rate… and don’t businesses generally employ people?
I’ll spare you the play-by-play: it turns out that making it expensive to run a business in NY makes a lot of people want to take their businesses out of NY, which naturally means that they’re paying (less) tax in some other state. Gov. Patterson realized all this perhaps a little too late:
“You heard the mantra, ‘Tax the rich, tax the rich,’ ” Gov. David Paterson said Wednesday at a gathering of newspaper editors at an Associated Press event in Syracuse. “We’ve done that. We’ve probably lost jobs and driven people out of the state.”
Yeah, and the sun will “probably” rise tomorrow. I mean, you can’t be sure.
In a different part of the country, Ken Nelson asks a similar question:
Because it’s your duty to sacrifice for your government, citizen. Well, let’s get Mr. Nelson’s take:
Four software engineers recently left my employ. Three to start a new company (I wish them luck and have helped them as much as I could). One to go to grad school ( I wrote him an excellent recommend).
So… do I plan to replace them? Are you nuts? I plan on making do with exactly what I have now. I’ll just scale my todo list back.
The number one reason is that I’m very uncertain about the economy. The second is that it is better for me to take profit now than after tax cuts expire and after tax increases come in to effect. The third is that my labor related costs are definitely going up – whether it be a FICA limit raise, a FICA rate increase, an unemployment tax increase, or health insurance. All indicators are UP on those costs.
When you make hiring expensive, I do less of it. See how that works?
Note that evil grasping capitalists, who don’t have access to legitimized aggressive force, respond to financial hardship by “scaling [their] todo list[s] back” rather than by stealing from their fucking children.
But… but… why can’t the market just work around this? Aren’t proponents of free markets supposed to believe that markets solve all problems and fart pixie dust and stuff?
Business risk is normal and competition just helps me do better. Political risk isn’t normal and I’ve no way to respond externally to it. I can’t “out compete” the tax man.
Uh-oh — the economummy’s starting to well up again. Time to hide the knives.