- The Laffer Curve exists. Since 0% taxation yields no revenue, and 100% also yields no revenue, there's at least one optimal taxation rate.
- If you're to the right of the optimal rate, you should always decrease taxation, at least to the point of being optimal.
- If you're to the left of optimal, you need to decide if you want government to be bigger. Here you should be guided by the maxim: "Government should be as small as possible but no smaller."
Of course, none of this tells you how to structure the tax burden. I'm a fan of fairly steep progressivity, but I hate the idea of wealth redistribution. Maybe next week I'll come up with guiding principles for resolving the tension between these two ideas.
For the record, I think we're to the left of optimal, and maybe government needs to get a bit smaller, but it also needs to pay down some debt. So I will sadly bid farewell to the Bush tax cuts, all the while feeling very noble and self-sacrificing. Of course, I'll be annoyed if taxes go up and the Dems throw a party, but surely they wouldn't be so irresponsible.
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