Can Cutting Taxes Raise Tax Revenue?

Yes! - and if you want to know more click here. This is one of the better explanations for how cutting taxes can increase tax revenues, and lower deficits if we don't increase spending at the same time, I have seen in a while. If you are inclined to check up on it the economic principle at work here is the simple observation that people can think about logical consequences. The logic goes like this if I work very hard at running my own business and take some risks I might get rewarded with $1 million in personal income, but if I know that tax rates are increasing so I get to keep less of my $1 million then I don't have the incentive to invest the money needed to earn that million because I need to protect myself from higher taxes so I work less and put money into non-productive and non-taxable investments. The result is I earn less so the tax I pay declines in dollar terms even though the percentage is higher...multiply this effect across the economy at large (and corporations not just individuals do this too) and you get a decline in the economic activity supporting the tax base and the tax base shrinks, which means that despite higher tax rates - a higher percentage collected on a lower base still yields a lower tax revenue number!