Under
those conditions (on the right of the Optimum Point in the STING
curve, the more to the right of it, the faster) every raise in
taxes decreases in absolute, real terms,
government revenue (the quantity of money that the
government will collect, in addition to causing a slow-down of
the economy) and diminishes the total money available for
the next budget, including money allocated for social programs.
Even
when a government has the best intentions, and continues to tax
more the wealthier people or businesses, it will eventually
experience a lower cash-flow. It may temporarily borrow more
(proportionally higher amounts with respect to the GNP), but
then will trigger a higher borrowing interest rate and a lower
credit rating, which in turn will accelerate the spiral of
economic failure.
This
is the reason why, in democratic countries with a high taxation
rate and a high cost of living, many governments that intend to
extensively increase social programs by further raising taxes to
help lower income people, do not achieve their objectives.
This
is why all the “eradicate poverty” schemes initiated by
powerful socialist and democratic governments have not achieved their
objectives (e.g.
Clinton 1992 promising to eradicate poverty in the US by year
2000 with an available budget of trillions of dollars), while governments “open to business”
do experience
(in the same country) a general trend towards better standards
of living and, in the long term a reduction of poverty in real
terms.
Furthermore,
these good-intentioned governments generally do not politically
survive for a long time because they end up in this spiral of
economic “GIBR-ish” (good
intentions - bad results).
Such
governments eventually show a poor balance sheet, are clobbered
by economists and industry associations (armed with negative
economic statistical indicators), are accused of treason by the
very people they promised to help and are defeated in disgrace.
Such
governments (full of good intentions, but low on hard cash)
could be compared to a person who out of his good heart gives
cheques to the poorest people in his neighborhood, but has not
earned enough money to cover the cheques.
They could also be compared to a loving parent that loans
more and more money in order to give gifts to his children and
grandchildren, but then he dies and leaves them with a large
debt to repay.
Good
intentions do not necessarily provide the best help to the needy
and often do not constitute good economic and social policy.
