Raise Taxes If You Want Less Revenue

by Mike on February 24, 2012

in Economy,Politics,UK Politics

Every time a nation faces deficits, our liberal friends argue that taxes must be increased in order to increase revenues.  Lowering taxes, they say, exacerbates fiscal problems because lower rates must mean that the government would take in less money.  But does it work that way?

Let’s take a look at what is happening in the UK right now.  Troubled by increasing deficits left by a Labour government (not a tax cutting government BTW), David Cameron’s Conservative-Liberal Democrat coalition introduced a 50p surtax on the UK’s wealthiest residents.  The result of making sure the wealthy paid their “fair share”?  Revenues dropped by half a billion pounds.

Looking at the deficit and taxation problem in a vacuum can lead one to the conclusion that higher rates lead to higher revenue while lower rates lead to lower revenue. What that shallow analysis ignores, as Ed Morrisey at Hot Air explains, is that the decision to increase taxes affects the behavior of those who are forced to pay in a way that leads not to an increase in revenue, but in a decline.  The UK is reminding us of that fact right now.  If you want the government to take in less money than it already does, then raise taxes.

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