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Phoenix
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McDeth: By "binary" I was referring to how computers function. I was making a jest. 
Washu's thinking is clearly conservative on this matter. What he's saying is that if you lower taxes, revenue will increase in the long term because more earnings overall mean there's more money available to draw tax from. It's a sound theory. As long as the economic growth rate exceeds the difference in tax rate you'll increase your revenue, and do so at a slightly accelerating rate. I'm sure you've all seen some rather basic economic theory... ever see the little supply/demand graphs? Here's how it usually works.
Joe Seller has a product. He wants to make money, so naturally one would assume the higher the price, the more money he makes. However, Jane Buyer only has so much money to spend, and may not be willing to pay that much for Joe Seller's product. This means Joe Seller may make a lot of profit per sale, but he won't sell many products. He will have too many products and not enough people to buy them, and it costs him to make his products. This is too much supply, not enough demand.
On the other hand, if Joe Seller prices his product too low, he'll sell a lot of products but he won't make any profits. He can't recover his costs, and eventually he'll lose demand because everyone will have one (market saturation) or he'll run out and people will lose interest (shortage). This is too much demand, not enough supply.
Neither situation is good. Instead, Joe Seller has to adjust his price to compensate for the level of supply and the level of demand. If demand exceeds ability to supply, prices are raised (sound like the gas pumps lately?) and if supply exceeds demand, prices are lowered.
Now apply this to taxes. If taxes are low, people will have an incentive to work, and will earn more money. They will also spend more money. This feeds the economy, as businesses can expand from higher revenues, and consumers can buy more things. If taxes are high, consumers have less money to spend, and businesses have lower revenue and can't expand. Economically speaking, taxes are bad. They are ALWAYS a drain on the system because they ALWAYS subtract from it. A pure market system desires no taxes at all. However, this is the Real World™ and taxes are necessary for the government to function. Again, like Joe Seller and Joe Buyer, a balance has to be reached. There's an optimal level of efficiency where revenues are maximized. This is NOT accomplished by raising taxes through the roof. At the same time, lowering taxes too much means you won't get any revenue at all.
The one thing missing from this discussion is government spending which is, by definition, wasteful. I'm not talking about allocation of funds to any one thing, like defense, or healthcare, I'm talking about the pure bureaucracy of the system. When you look at business overhead for administration and management and compare it to government's overhead for administration and management, it's astounding how wasteful inefficient the government is compared even to the most wasteful megacorp. Taxes would hardly be an issue of they were spent wisely. The problem is they are not. Where a friend of mine lives they just voted down a local school levy. Why? Of the 7 million that were going to be allocated, 4 million dollars were going to go for pay increases for adminstrative staff. These are people who already have 100% health care benefits, guaranteed government pensions, and make over $50,000 a year. This would have raised his property taxes by $400 a year. If it were merely operational expenses - like books, building repair, etc, the levy probably would have passed, but instead the local bureaucrats felt they were entitled to more money and tried to sell it by lauding how "efficient" the school had been by staying within budget for the last few years without a new levy. Ok, so you pat yourselves on the back for doing what you're supposed to? Where else can you get a huge raise just by doing your job, hmm? This was also the second time the levy was on the ballot, it had been there during the general election. It failed then, so they tried to sneak it through on a local election that not as many people would attend. You know what he told me? All the people he saw when he went to vote were over 60 years old. Those are people on retirement incomes who can't afford the higher property taxes, or they lose their homes. Nobody I know can afford higher taxes.
If the bureaucracy were not as wasteful, the budgets of Federal, State, and local governments could be slashed to a third of what they are. If a business can't manage its expenses, it goes bankrupt. Governments just raise taxes. A good example is the Internet. In the state of Ohio they have what is called a "Use Tax". If you order something online and you don't pay state sales tax you're supposed to voluntarily report it when you file your income taxes. Well, nobody pays it because most people don't know they should, or don't think to track it, or flat out don't want to or don't even care, and the end result is it's completely unenforceable. To compensate for this, the state recently changed tax law so that if you sell something in one county, but ship it to another, you have to pay the sales tax rate of the county where it's delivered as opposed to where the sale took place. Now how many small to medium-sized businesses can track sales in multiple counties like that? Sure, Wal-Mart won't have trouble with it, but what about Joe's Generator Repair Service? California is considering a "tax by the mile" system that would require every vehicle to have a GPS tracking unit because they'll lose gas tax revenues from all those fuel efficient hybrid cars they're developing. See, nowhere do they ever say "We need to cut our spending to compensate for lower tax revenue". All they ever do is find new and innovative ways to keep separating you from your wallet, and they don't give a damn how they get their money so long as they keep getting it. It's your fault for depriving them of their tax revenue is how they see it, when in reality they are the ones who are fleecing you.
You earn the money, they just take it away from you. Just something to consider the next time a politician whines about not having enough money for school books or what have you. Call their office and tell them and their staff to take a damned pay cut instead of sapping it from everyone else.
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