The Law of Diminishing Returns

It seems that one of the great passions of the liberal Democrats is the idea that raising taxes on the rich will somehow even the “economic playing field”. One big problem, it hasn't worked in the past and will not work in the future.

There comes a point when if you “punish” someone for being successful by overtaxing and/or over regulating them to raise government revenue in order to fund social programs and “pet” projects, the opposite effect occurs in most all instances. In economics 101, that is called the “Law of Diminishing Returns” (in taxation, the point where increasing the tax rates do not produce the desired revenue, but actually generates less revenue than expected). Let's look at history. Starting in the 1920's, when Pres. Calvin Coolidge lowered the tax rates, to when JFK, Ronald Reagan, Bill Clinton, and George W. Bush also lowered the tax rates, we have seen a subsequent boom in positive economic activity, contrary with what the naysayers (Socialists and Democrats) were predicting.

It might seem strange and incongruous that when tax rates are raised over a certain point, that the revenue that comes into the government coffers was less than what was expected, but when the rates were reduced to a “fair” amount, revenue soared. It was the the tax cuts proposed and enacted under Ronald Reagan that produced low inflation, low unemployment and the greatest economic boom in U.S. history, which continued on for the next 20 years. When Reagan came into office in 1980, federal receipts were $600 billion. In 1989, which was Reagan's last full budget, government receipts had shot up to $909 billion. But even with those increased government revenues, we still ran the government at a deficit. The main reason for that anomaly was entirely the product of Congressional “pork barrel” spending. They, the Congress, spent more money than the government took in in revenue.

It has been downhill ever since, especially since Pres. Obama, took office, as we now have over $18 trillion in national debt and it's still rising at an alarming rate. It is expected to reach $25 trillion in just a few short years. This could possibly result in what might be called a “government bankruptcy” (ala Greece and some other European economy's).

The Democrats continue to float the idea that it is “unfair” for someone in our society to amass wealth while others wallow in poverty. The Socialist tenet of “share the wealth” by taking from the rich (a/k/a the successful) and giving to the poor has “honorable intentions”, but in practicality, the unintended consequences have proved disastrous in practice. Pres. Johnson's signature legislation called the “War on Poverty”, is a good example of failure of government involvement in helping the less fortunate. Just the opposite has occurred as the poverty rate hasn't really improved in the over 45 years and $8 trillion spent on the poverty programs that were put into effect as a result of those programs.

So, the point of this editorial is that once you can reach the “point of diminishing returns”, it is downhill from there and the unintended consequences of these policies take over to make matters worse, not better.

The policies promoted by Pres. Obama and his Administration have not worked, even though he and and the Democrats are telling us that “everything is beautiful” economically. Too much government involvement has a tendency to stifle achievement as the incentives to succeed are diminished and many people will rebel, it is human nature. So, we must turn back many of those anti-growth policies that have reached the “point of diminishing returns”, and bring back the American spirit of innovation and incentives to succeed as the greatest nation in the world.

Conservative commentary by Chuck Lehmann