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Politics : Formerly About Advanced Micro Devices
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To: i-node who wrote (544253)1/16/2010 11:29:20 AM
From: RetiredNow  Read Replies (1) of 1574855
 
What you seem to miss is that tax revenues correlate more closely with economic growth than they do with tax rates.

OK. The second point. Although, I do applaud you posting evidence of your assertion, it's not a complete picture. An old statistics saying is that "correlation is not causation".

I might buy the assertion that tax revenues are more closely correlated with economic growth than with tax rates, but that doesn't mean there is no correlation with tax rates. In fact, tax rates are a very important driver of tax revenues and when you increase tax rates, you will almost always increase revenues in the short run. If those rates rise too high, it is entirely possible that over the long run it might stifle economic activity, which could eventually decrease revenues. However, if you increase rates in a period of rising economic activity, as happened during the 1990's, then you most certainly increase revenues, and as we saw, it does not necessary mean you stifle economic activity.

Let's use common sense for a second. Take a look at the following two equations. What do they tell you?

Consumer & Business Profits * Tax Rate = Tax Revenues

GDP (or Aggregate Demand) = Consumer Spending + Business Spending + Gov't Spending - Tax Revenues

QED
GDP = Consumer Spending + Business Spending + Gov't Spending - (Consumer & Business Profits * Tax Rate)

So by defintion, BOTH tax revenues and economic growth are impacted by Tax Rate Policy.
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