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Quote of the Day 12/9/09

If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.

Alexander Hamilton – Federalist 27

BHO’s plans include a level of intrusiveness into the lives of Americans that will impact individual liberty in two ways. Through programs like nationalized health care, cap and trade, bizarre environmental regulations, and government takeover of other sectors of the economy such as financial and the automotive industries, he will restrict our choices in many areas to only government approved choices.

But, worse than that, the tax burden placed on productive Americans to pay for these infringements will ultimately cripple our economy, and the resulting deficits will cripple our international standing as well.

During the Reagan administration, his critics made much sport of the Laffer curve, which showed that there is such a thing as an optimum tax rate which maximizes government revenue without crippling the economy. While journalists and comedians made much of this so-called controversial idea, economists understood it as a fairly standard economic principal – that of diminishing marginal returns.

While the concept of diminishing marginal returns, at least by that name, is a relatively recent concept in economics (hinted at by classicists like Ricardo, it really dates more from the time of Marshall and the neo-classicists, say late 1800′s to early 1900′s), Hamilton seems to have an intuitive grasp of the concept in 1787.

If taxes are too high, then there will be extensive efforts to avoid them, as well as less economic activity in general, resulting in lower revenues to the government. However, Hamilton’s idea that the inevitable result of higher taxes would provide a natural disincentive to the government that would prevent them from raising taxes overmuch has been proven wrong.

This administration seems compelled to impose higher taxes, paid with weakening dollars, and destroying the most productive society in the history of mankind. Hamilton’s error lies in the assumption that there would be wise governance under the system he worked so hard to create. BHO is the very antipathy of wise governance.

More change we can believe in.

fiat lux!

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