The Policy Vacuum

The fundamental tenet of the liberal mind is this belief that big government is preferred to, not to mention superior to, small government. Since the ideology of big government is persistent in the liberal mind, it is axiomatic therefore, that government is more effective and efficient in allocating resources. Thus, it is acceptable for the government to legally “steal” your money at the point of a gun and disperse it according to the will of the political class at that time.

Unfortunately, politicians do not comprehend that their actions and decisions do not occur in a vacuum. The repercussions of their actions are typically far more disastrous than those created by their inaction. Think regulations for a moment. The collapse of several large banking institutions, along with many smaller ones, have created the idea that banks must refrain from certain levels of financial risk by maintaining government "approved" reserve levels. Therefore, if a bank loses money on subprime mortgage lending, for example, the reserve may dip below the required level for “safety.” The bank then sells additional subprime mortgage loans to shore up the reserve but in doing so pushes down the price of those loans in the market, which further depresses the bank’s assets and so on.

Politicians also perceive income taxation to occur in a vacuum. If the tax rate is raised or the tax base expanded the political hacks believe that they will increase tax revenue to the government. However, new confiscatory tax schemes cause taxpayers to make attempts in sheltering their income, postponing income recognition, or through other measures. This economic reality is exemplified by the “Laffer Curve,” more details here

Arthur Laffer, popularized the basic notion in the 1980's that increases in the rate of taxation do not necessarily increase tax revenue. His common sense theory posits that there a "sweet spot" in overall taxation rates that maximizes tax revenue to the government. Cross that line and people tend to work less causing lowering productivity, decreasing innovation, destroying incentive, and creating a burgeoning welfare state.

The common opinion today is that the government is operating well into the right side of the curve, the shape of which causes decreases in government revenue with each announcement of a new spending program proposed by the current leadership with its impact on the opportunity costs for individuals and businesses to make money.

The main concern currently is that Pres. Hopenchange, along with key liberals, most likely don't care about the ramifications of the Laffer Curve because the politics of "making the rich pay their fair share"--regardless of the fact that about 50% of the American public don't pay ANY income tax--is an overriding concern in their liberal belief system which is centered around the ideals of equality and fairness.