Will Tax Hikes Undermine Economic Recovery?

There's been a lot of debate in Congress over the Bush Tax Cuts that are scheduled to expire on December 31, 2010.  The Democrats are adamant that the tax cuts be allowed to expire, whereas the Republicans want them extended or made permanent.

The Democrats claim that the resulting tax hike is needed to pay down the deficit.  The Democrats have spent a lot of money since Obama came to power, running up the national debt to historic levels.  Now they want the taxpayers to pay for their reckless spending, spending that was largely for pork projects and junk that no one really needed or wanted.

Democrats remind me of my first wife.  She had manic depression, but we didn't know it.  The main thing that made her feel better was spending money.  Though we were young and broke, she ran up charge accounts for clothes and other goodies that she didn't really need.  I realized that she was out of control and that I couldn't stop her.  While I tried to keep our small ship afloat, my wife was below decks drilling holes in the hull.  We were divorced and it took me several years to pay off her debts.

So I don't really care if the Democrats want more tax revenue.  As far as I'm concerned, they can't have it.  They can instead slash spending to the bone.  But my opposition to a tax hike is more than just revenge against Democrats, who seem to have a psychological need to bleed the private sector white.  It is because my gut tells me that higher taxes suppress economic growth, resulting in fewer jobs and less prosperity, not only for the hated "rich," but for all Americans.

Some years ago a policy wonk named Arthur Laffer described the relationship of tax rates to tax revenues.  He drew a graph that has become known as "the Laffer Curve."  Basically, the curve shows that when tax revenues are raised beyond a certain point, tax revenues fall rather than increase.  Put another way, when tax rates are too high, a tax increase will cause tax revenues to fall.

Democrats, on the other hand, do not seem to understand this.  They seem to believe that the economy is unaffected by tax rates.  Therefore if you double the tax rates, you double the tax revenues.  Not so.  An increase in the tax rate to 100% would not increase tax revenues; it would eliminate them, as no one would work.  (The former tax payers would be too busy marching on the Capitol Dome with torches and pitchforks.)

Government has a strong duty to run itself as efficiently and cost-effectively as possible.  Our government couldn't care less about such things.  They just want to spend money without any restraint, and have us pay for it.  Furthermore, giving more money to Democrats is like giving more dope to an addict.  They won't pay down the deficit, they will just spend the additional money (if there is any) on new pork, secure in the knowledge that they can continue to raise taxes to fund their folly.  If we are to draw a line in the sand, let us draw it right here, right now.  No means no, NO, NO, NO!