You Never Could Tax Your Way to Prosperity

Lest you think that this is a diatribe related to politics, relax. Long, long ago I gave up letting the micro-brains in government (both elected and unelected) impact by disposition.

No, this is a post about economics. And basic economics at that.

I have long believed that the framers of our constitution should have included a minimum number of basic economics courses at the university level as requirement for holding any elected or unelected position in any federal or state-level government. And with so many idiotic decisions being made in terms of “handling” the economy, my belief gets validated over and over again.

Case in point – my great state of Michigan. (Notice that was a small-g great).

Did you hear the latest? After all of these months, and with a budget due by Sep 30 or the government will shut down, our small-g governor is STILL sticking to her belief that she can tax the state back into prosperity. With all the job losses, all the foreclosures, all the uncertainty, with Comerica, Pfizer, and now Volkswagen high-tailing it out of the state, her BRILLIANT idea is to RAISE taxes.

Unbelievable.

My frustration stems from the fact that economic data has been proven time and time again that raising taxes DOES NOT improve the economy. Conversely, though, the economic data has CONSISTENTLY shown that cutting taxes increases TOTAL tax revenue. Counter-intuitive, yes, but true nonetheless.

A prime example of this total lack of understanding of basic economics is the cigarette tax. Cigarette smoking declines, so cigarette tax revenue to the government declines. The government counts on this money, so their solution is to raise the cigarette tax. This causes MORE people to stop smoking, so tax revenue declines again, so they raise taxes again. And so on, and so on.

I feel sorry for the last guy left smoking in America – he’s going to have to pay a billion or so dollars a pack for cigarettes. (Although if the Fed keeps monkeying with the economy, with inflation a billion dollars won’t be a billion dollars anymore. But don’t get me started on this again).

This behavior is so stupid that it’s comical. Yet it continues to occur, over and over again.

Why is this so hard to understand?

 

 

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