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Tuesday, September 18, 2007

The Laffer Curve - High Taxes and Crushing Regulations are Great!

I have thought about this issue from an agorist point of view. An agorist wants tax rates to be as high as possible! An agorist wants government regulations to be as crushing and burdensome as possible! That's kind of perverse, isn't it?

High tax rates and high regulations are an incentive for agorist grey market activity. As tax rates increase, there's a greater incentive for working off the books. As regulations increase, there's a greater incentive for ignoring them. Regulations and taxes are effectively the same. Both waste resources.

After a certain point, the government's enforcement power is INVERSELY proportional to the taxation rate and level of regulation. This is the famous "Laffer Curve".

The "Laffer Curve" says the red market maximizes its power and influence at a certain taxation rate. After a certain point, increasing taxes doesn't increase government power. After that point, people start working less or start working off the books. Below a certain point, the government isn't squeezing as much out of the workforce slaves as it can.

However, "Laffer Curve" economists only include income taxes. They don't include the inflation tax. They don't include the regulation tax.

At one extreme, a zero taxation rate, the government has no power. People are free. Of course, the red market agents would never allow this to happen.

The red market agents need to have at least a certain amount of taxation. If the taxation level falls below a certain point, people will have enough spare time and resources to figure out what is happening and revolt!

What "Laffer Curve" economists don't mention is that the shape of the Laffer Curve is not constant over time. As the economy becomes more efficient, red market agents can confiscate a greater percentage of wealth. In fact, the red market MUST increase the taxation rate as the economy becomes more efficient. Otherwise, people would have enough spare resources to figure out what's going on and revolt.

However, the government's enforcement power does not increase as it raises taxes. It decreases. The incentives for grey market activity become too great.

Perversely, an agorist LIKES living in an area with high income taxes and government regulations. That means there's more profit to be had!

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