Here’s a secret no politician wants you to know about. It’s called the laffer curve, and it shows how lowering tax rates can increase the government’s revenue.
If the tax rate was zero, obviously no revenue would be collected. If the tax rate was 100 percent, the revenue collected would also be zero. No one would, or could, work for nothing. When the tax rate is somewhere in the middle, we know the government collects a nice chunk of money.
So if you picture this in graph form, you’ll see a curve that starts at zero, climbs up in the middle, then descends back to zero. At the peak of the curve is the tax rate at which the government will collect the most revenue. When the tax rate goes beyond that, people start avoiding taxes by working less, not growing their businesses, cheating, moving, using tax shelters, bartering, etc. When the tax rate is on this side of the curve, each tax increase causes revenue to drop! We’ve seen this principle play out when JFK and Reagan both lowered tax rates significantly, and revenue increased sharply. We’ve also seen it play out recently in Europe; as tax rates were raised, people moved out en mass and revenue dropped by millions.
Politicians have to understand this, so why do they just keep increasing tax rates? The answer is power. Taxes have become a weapon politicians use to punish their enemies, and reward their friends by giving them exemptions.