Charlie Musick has an excellent post on the effects of taxation on a goat farmer at RealClearMarkets:
For a goat farmer, government is necessary and does play a very worthwhile role. The government prevents foreign armies from invading and taking the goats (national defense), other people from stealing the goats (justice), or someone from running the goat farmer off the land he uses to raise goats (protect property rights).
In this example with goat farming, it does not matter whether the government is getting goats through taxing new ones(income tax), borrowing goats from the herd (deficit spending), or stealing the goats at night (monetizing debt). When the government takes goats by any means, it destroys wealth and lowers future tax revenues.
However, I think that I draw a rather different conclusion from his example than Mr. Musick does. Unlike Mr. Musick the move to “raise taxes on the rich” doesn’t “get my goat”. His example leads me to the conclusion that the impact of taxation varies based on the underlying economies of the enterprise and that one size does not fit all. What’s a reasonable tax on a banker may not be a reasonable tax on a goat farmer may not be a reasonable tax on a children’s book author may not be a reasonable tax on a doctor may not be a reasonable tax on a manufacturer. Perhaps we shouldn’t be taxing income (production) at all. Shouldn’t we be taxing consumption?