In Mosiah 7-19 we are told that Ammon and other Nephites from Zarahemla stumbled upon their brethren in Lehi-Nephi. We are told that the Lehi-Nephite decline started when King Noah raised income taxes from 10% to 20%, and culminated in their subjection to the Lamanites, who taxed them at a rate of 50%. Modern readers may wonder at this; why would the Nephites feel enslaved when many “free” nations nowadays have had much higher tax rates? (The USA had rates as high as 91%, and when Ronald Reagan won the US presidency in 1980, the top tax rate was 70%.) The “supply side” school of economic thought may provide an answer.
Contrary to popular belief, supply side economics does not mean that lower tax rates always mean higher revenues. What it does assert is that, above a certain optimal tax rate, revenues will cease to rise and begin to fall, as illustrated in this screen shot:
At lower tax rates, more people are willing to pay taxes, and, at higher rates, people tend to drop out of the tax-paying economy. Dr. Arthur Laffer postulated that there were two rates which yield zero revenue: Zero, for obvious reasons, and 100%, because nobody would work only to have nothing to show for it. Thus, raising taxes from zero or a low point would raise revenue, because the extra tax paid exceeds the people dropping out. However, after that optimal rate, higher rates yield lower revenues, because more people drop out than pay the extra tax.
Theoretically, of course, the Lamanites could have simply enslaved the Nephites outright, but that would have meant spending a lot more resources to spoil the Nephites. As it was, the Lamanites stationed guards around the settlement [See Mosiah 19:28] to minimize the drop-off from the Nephite economy. Evidently, the Lamanites reasoned that it was more cost-effective to station relatively few guards to prevent escape and to periodically despoil the Nephites than to have many more Lamanites trying each day to coerse work instead of escape attempts or revolts from sullen Nephite slaves.
Perhaps this is something for Brother Harry Reid and his colleagues in the US Congress to think about when they try to abolish Reaganomics. They seem to have forgotten the first two rules of economics: 1) There are only a finite amount of goods to satisfy an infinite amount of wants, and 2) everybody responds to incentives.
UPDATE: A few of the comments made it necessary for me to clarify:
1. If there were any pot shot at all it was against Congress as an institution. I only singled out Senator Reid because, as the senior legislative official in the Congress’ upper house, he is the Church member in the best position to quash such a planned repudiation of supply-side economics. True, there are at least three GOP Senators, but, as all are in the minority party and none of them is a ranking minority member of any relevant committee, they are all WAY down on the seniority scale, and are in no position to stop much of anything–even if they wanted to.
2. While major tax cuts were put into place under GOP presidents, and both Democratic candidates are campaigning to abolish those tax cuts, taxes are not necessarily a partisan issue. Senator Hillary Clinton’s [D-NY] husband, then-Governor Bill Clinton [D-AR], campaigned on a “middle-class tax cut” in 1992 for example. Moreover, in 1992, Arthur Laffer endorsed Clinton for President (and reiterated his support later!), while Senators John McCain [R-AZ] and Gordon Smith [R-OR] (one of the aforementioned LDS GOP Senators) both voted against at least one of the GOP-sponsored tax cuts.
3. Last Lemming is right that the 70% and 91% top marginal rates were different from the Lamanite 50% rate–the old US policy was both better and worse than the Lamanite rate. Better, because most Americans paid considerably less than the Lamanite rate, let alone the top US rates. However, it is also worse than the Lamanite rate, because increasing marginal tax rates act as an ever-growing disincentive to capital formation and wealth creation.
4. The Noachian policies have had their share of legitimate programmes (See Mosiah 11:10, 13), and the US spending its share of pork. And that pork knows no political boundaries. The Democrats’ “Midnight Basketball” and the GOP “Bridge to Nowhere” come to mind as examples.
5. I have elsewhere denounced war as a means of economic progress, but that is an entirely separate issue from using punishing tax rates to raise revenue. War isn’t a strictly partisan issue though; President Bush sent us to war in Afghanistan and Iraq, but his Democratic predecessor sent us to war in Kosovo and changed the mission in Somalia from one of supply to one of combat. Furthermore, his wife, Senator Hillary Clinton voted for war in both Afghanistan and Iraq, and Senator Barak Obama [D-IL] announced his intent to invade Pakistan, while Representative Ron Paul [R-TX] voted “Nay” to war both times the subject came up over the last seven years.
6. It is true that the Lamanite rate was meant as punishment while the high US and other welfare states’ tax rates were meant to raise revenue to pay for programmes designed to help people. (What I think of some of those programmes is another subject, to be treated elsewhere.) However, this leads nicely into my point: If the Lamanite punishing rates are set up to maximise revenue, then higher tax rates are, in effect, (unintended?) punishment for punishment’s sake–without the redeeming factor of raising revenue that pays for any worthy programmes. Given some politicians’ rhetoric (on both sides of the political aisle; notably Governor Mike Huckabee [R-AR] and Representative Dennis Kucinich [D-OH]), I’m not sure how unintended that punishment is.
7. It is true, Connor, that no economic policy exists in a vacuum, and not all other things are equal. For example, the tax rate increase of 1993 was more than offset by the tariff (i.e., taxes on imports) cuts of NAFTA and GATT/WTO, and the Noachian public works partially offset his doubling the tax rates. (The “Keynesian Multiplier” doesn’t completely cancel out the “Broken Window Fallacy.”)