History Repeating Itself...Again

I have to admit to feeling frustration with the "tax-'em-'til-they-bleed/leave" bunch. It has become quite apparent they lack two things: an understanding of economics and history.

It is this lack that drives the Obama Administration and a good portion of Congress. With history making budget deficits and plans to raise taxes to economy draining levels, it's quite clear they have unrealistic expectations of the revenues they'll collect, which in turn will drive them to raise taxes even higher, causing a further drop in revenues.

Whether it is a revolt of the kulaks, or mere tax avoidance, there is economic distortion from high rates of taxation.

The British are seeing this effect in their current budget, as wealthy Brits engage in tax avoidance (structuring their financial lives so as to legally avoid taxes) in anticipation of a rise from a 40% to a 50% rate.

Obviously the Brits are on a path to return to the bad old days of their 1970's economic malaise, when confiscatory tax rates drove the wealthy (and their wealth) out of the UK. The result was a moribund economy, high unemployment, falling tax revenues, and the failure of a number of long-standing British corporate icons (British Leyland, MG, and British Steel, just to name a few).

Two things to remember when it comes to taxes and government (from the comments):

The raising of T(axes) has the effect of decreasing I(nvestment) which in turn has the effect of decreasing Employment (N).

The larger the share of G(overnment) as a part of GDP, the worse off..the economy in the long run.

Turning this into an equation, we get the following: T=1/Ix → G=1/GPDy
(x and y are multipliers used to generate the correct ratio between the left and right side of the equation.)

But as we've already seen, those pushing for the ever higher taxes don't really understand math.