The notion that increasing taxes will increase revenue is bogus. Winston Churchill nails it with this famous quote, “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
There are examples in the United States that demonstrate that revenues increase by lowering taxes, and decrease by raising them. There is an optimum point in the taxes/revenue equation and it has a name. It is called the Laffer Curve.
Since classical economic theory back in the early part of the 20th century economist have always known about money circulation. What is referred to as velocity. The faster money goes through the economy the more money people make and the more taxes are collected. Since then the equations have gotten a lot more complex with partial differentials, regression analysis and other mathematics. The principals are the same. The faster the economic activity the more jobs, income and taxes.
So how do we get a faster economy? There has to be some tax rate that allows maximum tax collections right? Yes there is. Arthur Laffer took a simple business principal studied by millions of business majors the world over. The maximum profit point or maximum revenue point. It the point where the price of your Chevy trucks makes you the most profit. Charge too much and you lose customers. Charge to little and you lose money. It’s not that complex. Disney does it for ticket prices. Walmart does it for their store pricing policies. All business does it. So why when Arthur Laffer does this same thing for government maximum revenues is he ridiculed for “trickle down,” “Voodoo” and other names too discredit his theory?
By understanding the Laffer Curve and the adoption of the Fair Tax, you will easily see how beneficial and growth oriented the Fair Tax would be to the economy.
Please check it out.
Link: Fountainhead Zero: Taxes 101: The Laffer Curve