The Islamic State vs. the Laffer Curve by Daniel J. Mitchell

Based on my writings, some people may think I’m 100 percent against higher taxes.

But that’s not exactly true. In some cases, I like punitive taxation. Or, to be more precise, I sometimes take pleasure when punitive tax policy backfires on bad people.

Here’s an example. An interesting article in Slate, authored by Adam Chodorow of Arizona State University Law School, looks at how a terrorist group’s attempt to form a government is being stymied by an inability to collect taxes.

So taxes are becoming so onerous that taxpayers (and taxable income) are escaping.

Hmm… excessive taxation leading to less taxable economic activity. That seems like a familiar concept — something I’ve written about one or two times. Or maybe 50 or 100 times.

Ah, yes, our old friend, the Laffer Curve!

ISIS is … constrained by a lack of administrative resources and the simple reality once sketched on the back of a cocktail napkin by the economist Arthur Laffer: that tax rates can only get so high before they actually drive down government revenues.

Given current conditions, ISIS may be near or at the limits of its ability to tax, even if it can recruit jihadi tax accountants to its cause. Thus … it’s not clear how much room the group has to grow internal revenues. More important, its efforts to do so may do more to damage its prospects than outside forces can accomplish.

This sounds like the tax equivalent of War of the Worlds, the H.G. Wells’ classic in which alien invaders wreak havoc on earth until they are felled by bacteria.

Tom Cruise was the star of a 2005 movie adaptation of this story, but I’m thinking I could rekindle my acting career and star in a movie of how the Laffer Curve thwarts ISIS!

But to have a happy ending, ISIS has to be defeated. And Professor Chodorow closes his article with a very helpful suggestion.

Rather than send in ground troops … view our tax code as a weapon of mass destruction. … We could make full use of it in the war on ISIS, perhaps by translating it into Arabic in the hopes that the group adopts it.

Sounds like the advice I once gave about threatening Assad with Obamacare.

A version of this post first appeared at Dan Mitchell’s blog International Liberty.

Daniel J. Mitchell

Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

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