“Rahn Curve and, similarly, the Hauser’s Law in conjunction with the Laffer Curve, describe the practically “optimal” tax rates.”
As much as I agree with your post, there is a more important topic that finding the optimal tax rate.
The famous Laffer Curve shows that when government has a zero tax rate, it gets zero revenue. When it has a 100% tax rate, it gets 100% of nothing and thus has zero revenue. The curve bulges in the middle to show that there is a rate of taxation that produces the greatest amount of revenue to government.
Conservatives argue that when tax rates are too high, lowering the rate will increase government revenues. This implies that tax rates had been above those that produced the bulge. Lowering the rate moves us down towards the bulge in revenues.
Liberals argue that if only we could increase tax rates, we could have more revenue to spend on “vital programs”. They assume that tax rates place us below the bulge.
But both of these positions miss a fundamental point. Consider that when there is zero government, the resulting anarchy makes society unlivable and thus destroys liberty. But when government takes over every single function of life, there cannot be any liberty at all. The preamble of the Constitution tells us that we form a government to “secure the Blessings of Liberty to ourselves and our Posterity”. The Constitution then goes on to describe a structure of limited and enumerated powers. Too little
government as well as too much both destroy liberty. So, obviously there is an optimum level of government, a bulge in the middle, of optimum liberty. I call this the Liberty Curve.
In advocating lower tax rates, Conservatives are advancing the wrong aspect of government. Our obligation to ourselves and our Posterity is not to optimize the amount of money the government has to spend by optimizing tax
rates, but to optimize the level of liberty that each citizen has by optimizing the level of government! As government grows, our liberty must retreat. But for our own protection, we must have some level of government.
I know that level is far less than we have today.
We would not be in the mess we are currently in if our focus had been on liberty as compared to spending. Even the idea of running a perpetual deficit destroys liberty, for it places all future taxpayers in a form of debt-servitude from which we cannot allow escape, lest government be unable to service the debt incurred by those long dead.
We can start down the Liberty Curve by spending less than we take in. We are not anywhere near doing that with the current debt and budget debate going on in Washington at this very moment.
Futher, the Rahn Curve [1] shows us that when tax rates get above about 20%, people who do have some measure of control over how they structure their financial affairs take active steps to decline to pay more in taxes. It is just a fact of life that any politician attempting to increase revenues by raising taxes will be disappointed, and any plans and budgets that depend on those higher revenues will fail.
The only way out is to spend less and shrink the size of government. The only way out of the debt morass is to boost wealth creation. The only way to boost wealth creation is by giving entrepreneurs more liberty to create
more wealth and jobs. But government cannot pick and choose who will start the next Apple or Microsoft. But it can pollute the risk-taking environment so that nobody will be willing to invest their time or money in new ideas.
When government tells such people beforehand that you can only deduct $3,000 of your losses, the more government tells us that it will take of the gains, the fewer people there will be who will try. And right now, we cannot have too many people starting up or will fund new business ventures! So, apart from cutting government spending,
we need to do something that big government types just refuse to do: give people more liberty.
[1] The Rahn Curve and the Growth-Maximizing Level of Government
http://www.youtube.com/watch?v=uj6lRFXC5rA
Which is pretty close to what was found by Hauser. Despite what Buffett said, taxes do affect investment behaviour and people (including, first and foremost, investors and managers like Buffett himself) often alter their investments on that basis alone. Al one needs to remember is those counterproductive tax shelters in the U.S. of 1960s and 1970s. Every company has a fiduciary duty to lower effective tax rate, which is one reason why so much corporate money is now stashed and used more productively overseas by the U.S. companies. We are not even talking about job-killing and economy-starving regulatory environment.
As much as I agree with your post, there is a more important topic that finding the optimal tax rate.
Obviously, I agree with your larger point of inverse relationship in degrees of government and degrees of liberty, but by saying "optimal" tax rate I was more narrowly commenting on the direct topic of the CNBC/AP article ("Spending Cuts, Not Tax Hikes, Best for Deficit") trying to show that any federal government spending above that "optimal" rate will inevitably lead to deficits, as proven by Hauser and, tangentially, Laffer. And the numbers in the articles in my post seem to prove that, as well as providing some ammunition for the "fair share" and other class-warfare and politics-of-envy arguments.
That doesn't mean that it should be the goal to "give" the government the "optimal" amount of money to spend, in part because governments have proved that they are incapable of spending wisely or stay away from purely political spending of any amount. Not that the governments ask much for the permission to "take" (tax more), and when they find that they can't "tax and spend" they just "borrow and spend" the money.
I do understand and appreciate your larger point, we don't have an argument there.