Tax Hikes Perversities

Historically, tax hikes do not fare well. They never perform as advertised. They never collect the amount of money they are supposed to. Perversely, governments often collect less physical money after the tax hike than before the tax hike. And, I am not talking about tax hikes made in recessionary times, which by the way is really stupid.

Politicians and others come up with 50M reasons why the tax did not work as advertised. I doubt that any of them know what they are taking about.

Sometimes tax reduction produces more actually tax money. This can happen if there is more commerce activity after the tax reduction than before it.

I have read a lot of economics over the years. It would seem that these sorts of perversities happen after governments are taking more than 30% of the GDP in taxes. Do not forget that governments do not create money, they just move it a round (after taking their cut). If more than 30% is taken then GDP growth slows down.

It would seem that generally people do not mind slower GDP growth if the government provides more social programs. It is a tradeoff. Or, perhaps people do not know this.

However, you can see what a bind the Western world is in. We all have high government debts and our governments are already taking out a high percentage of our GDPs.

Government spending by GDP is not generally easy to find. Here is a site that talks about this. Federal Government spending. Canada comes in at 43.8%. US Federal government spends 23.6% of GDP. Site goes on to say Total US spending of GDP is around 40.6%. The UK comes in at 50.9%.

There was an article in a newsletter I receive which talks about UK scrapping the 50% tax rate on the rich as it was not raising the money that was expected. I looked for a news item on this and found one at Telegraph that basically said the same thing. Not only did tax revenue no rise, tax revenue was actually lower. UK is now scrapping this 50% tax. See article in the guardian. This article reminded me of others such articles I have read over the years.

I get a newsletter from John Maudlin and people can subscribe free at his site. He talked about recent newsletter called Things That Make You Go Hmmm. You can get this from by subscribing from this site. Things that make you go Hmmm talked about a recent UK tax hike on the rich.