Taxes are a big topic now, and I hope to lay down a easy to understand reason for why lower taxes gives more money.

There is a 'fixed' amount of money, the only things that vary is spending and earning.

In principle a person spends most of what they have 'in hand', on rent/mortgages, food, clothes, utilities, pensions/ira's/401ks/etc, and the likes.

Now lets assume some base rules for our 'math' here. 10% savings, 10% for retirement, 25% for housing, 20% for all other 'necessities'.

This means we have 35% of our income as allowance for taxes and entertainment and luxuries.

Luxuries defined as vacations, better looking cars, better clothes, better electronics, etc.

If we all earned an 'average' of $100,000 then we are looking at $35,000 spare dollars for these remaining items.

Now the truth is our tax rate affects our other $65,000 as well. Prices drop when taxes drop, they raise when taxes rise. Lets assume a 25% tax rate for "the base tax".

Now this means on average you have to spend, for luxuries, $10,000 cash.

When taxes go up we see a change however. Now everything costs more. Lets go with a 28% tax rate.

This equates to a 'basics' cost of $72,800 and a taxes of $28,000. The net total is $100,800 in costs. This means your no longer able to afford luxuries and you need to reduce your total savings or retirement allotment by almost all.

The net effect is you are now also spending $10,800 less (For savings is spending, it is invested by your banks into businesses or stocks, and helps the economy). This is a 10.8% reduction in total spending you are now doing.

So for a 3% gain in taxation we now spend 10.8% less cash.

Now this affects jobs, we can safely assume a 10% reduction in jobs. After all if spending is down 10%, then this will result in less jobs. If not a 10% reduction in jobs, then in pay, or a combination. When there is no money...

The net loss therefore to the Government is 10% of it's revenue in exchange for a 3% increase.

If taxes go down...

Lets say taxes went from 25% (our base) to 23%.

Now every household has a bonus $2,000 in cash to spend. This represents an increase by 5% in our total spending ability.

As a result we need to increase productivity by 5% to account for the new spending. This could equate to a total of 5% more employment, or increased pay (if employment is already maxed out relatively) by up to 5%.

Regardless if this flat tax (essentially a flat if all are earning the same amount) results in a 5% increase in taxable income. The government does not 'lose' $2000 in taxable cash, they lose $1540 in taxes, but everyone feels better.

The purpose of this demonstration is that there is a thing called THE LAFFER CURVE. The Laffer Curve says that minor changes CAN have huge effects. It also says that there is a "SWEET SPOT" in taxation where taxation may result in the highest returns for the government.

Arguments abound about the optimum point's location, but in general even Liberals have to admit such a curve would have to exist in a free market.

However there is also a known effect of the Laffer Curve where two points may result in the same taxes being generated, but the left side (aka the less taxes side) results in a lot more spendable income for the citizen where the right side (aka the higher taxes side) results in much less spendable money.

Now a lot of talk goes on how people may 'hide' money... I do not see it that way. I see it as an effect of reduced income. You reduce it to far, and to many people lack jobs, which results in much less income for the government. Hide scmide... it happens even now that people 'shelter' money, but if the bulk of governments wanted to they could end 100% of shelters without breaking a sweat. They create/allow shelters because even the politicians understand that eventually they want to live in a lower taxation bracket and still have lots of money when they retire.