Increase Revenue by Lowering Taxes?

It seems too good to be true! Could our government possibly generate more revenue by lowering the income tax? It seems hard for some people to understand that “high tax rates” do not always bring more revenue for the government. In 1921 we charged the higher income households %73 as an income tax. Honestly who is going to want to make money if %73 percent of their revenue is being taken by the government? At this point higher income households began to move their assets away from the American Economy in order to actually benefit from the work they did. We began to lower the income tax in 1921 due largely to the influence of Calvin Coolidge. By 1929 we had lowered the tax rate to %24 for the higher income households, while also lowering the tax rate on lower income households. You’d think that this would decrease our federal budget but it actually raised the revenue by $281 Million!

One thing to remember is %73 of nothing is NOTHING. The graph that is presented here illustrates how the Laffer curve works. In this economic theory we see that there is a certain point at which any raise in the tax rate will actually lower the revenue that the government receives. Now as you can see lowering the tax rate will not always produce more revenue but it is definitely a key principle to keep in mind when creating fiscal policy.

The American people will at some point reach a place at which they will figure out how not to pay taxes or take their money elsewhere in order to keep what they earn. If %73 of your income was taken away then believe me you would be figuring out ways to take you’re money somewhere where you would not be charged for making money. Another thing to understand is that the higher income households are the individuals that help this economy grow by producing jobs for the middle income and lower income families. If you cripple them with tax burdens you in the end cripple the economy, and hinder the growth and job creation that would have otherwise occurred. We have the right as free Americans to choose how to spend the money we make whether we are in the high, middle, or lower income households.

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