We're all being told by politicians at just about every level of government that as the economy improves, revenues for government will increase.
This is not necessarily a wrong premise, since increased economic activity obviously provides more 'income' that government can tax.
However, when government plans to increase the amount of taxation on such 'income' whether it be dividends, wages, capital gains, etc..., people will make plans to reduce what they have to pay and to increase the amount of money they can keep.
Arthur Laffer, in a column in the Wall Street Journal (subscription may be required), makes the argument that people will maximize their income this year to take advantage of the current - and lower - tax rates. He predicts this will have a devastating impact on our economy next year when the economic activity would have normally taken place.
This does not bode well for budget projections or for politicians who are not making cuts in spending now hoping for increased revenues next year.
Toledo's elected officials have already expressed such hope for future revenues and are counting on increased monies to pay for costs they've pushed into next year. They've deferred police overtime until 2011 when it will be paid out at a higher hourly wage since police will be getting a pay increase as of January 1.
But if Laffer is correct, those hoped-for revenue increases will not materialize, leaving us with no additional funds to pay for the extra/delayed costs we know will have to be paid.
So what then? Even more taxes foisted upon us? Well, that seems to be the cycle....
When will they learn?