Supply-side economics, summed-up neatly by the Laffer Curve, seems to annoy many self-styled progressives. To be fair, there is something of the air of having one’s cake and eating it about the idea that one can cut tax rates and thus raise more tax revenue. But one cannot help but feel that the detractors of supply-side factors are simply struggling to overcome their desire to punish rich people for being so successful.
Anyway, the logic is irrefutable: at some point the effect of raising tax rates must diminish rather than increase tax revenue, if only because at 100%, taxes would eliminate all wealth creation utterly. But don’t take my word for it. Just ask the 20th Century’s most influential economist:
…to create wealth will increase the national income and that a large proportion of any increase in the national income will accrue to an Exchequer, amongst whose largest outgoings is the payment of incomes to those who are unemployed and whose receipts are a proportion of the incomes of those who are occupied…
Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more—and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.