Monday, November 01, 2010

How to Make Atlas Shrug....

....Or to reach even further back into literature, how to kill the goose that laid the golden egg. Forbes publisher Richard Karlgaard explains why increasing tax rates is counter-productive to increasing tax revenues (for those that still don't get it) and notes that the effect is non-linear:

The more you tax and regulate things, the less you get of those things. What's really important to understand is that the "less you get" part is not linear. There's a tipping point at which you may get nothing if you pile on too many burdens. The supplier always has a choice to supply or not. Capital can go on strike. Atlas can shrug.

That's the theory, but is it true? Let's ask Rolling Stone Keith Richard:

"The whole business thing is predicated a lot on the tax laws," says Keith, Marlboro in one hand, vodka and juice in the other. "It's why we rehearse in Canada and not in the U.S. A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we'd be paying 98 cents on the dollar. We left, and they lost out. No taxes at all.” [my emphasis]

QED. Nothing like a nice little example from the real world to prove the point.

(h/t Bob)

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