How Raising Taxes Will Not Balance the Budget: More Evidence

In an effort to help fix the deficit, many have advocated increasing taxes on America’s highest earners. The question becomes: is this a good way of increasing the amount of money that the government takes in? According to Professor Antony Davies, when the government raises taxes on top earners, the federal government actually collects less money per person, and when it decreases the government collects more.

There are exceptions to this trend, however. Changes in the marginal tax rate for the average American appear to have no consistent effect on revenues collected. Increases in Social Security and Medicare taxes tend to increase the amount of money collected per person. With the proper use of deductions, exemptions, offsets, and credits, and by delaying or changing the form of one’s compensation, federal income taxes, capital gains taxes, and many other taxes can be at least partially avoided. In contrast, Social Security and Medicare taxes are subject to far fewer loopholes and are much more difficult to avoid.

So how can the government collect more tax revenue? Prof. Davies says that the key is a simplification of America’s notoriously complex tax code. A simpler tax code would make it more difficult for people to avoid taxes and would lead people to spend less time trying to avoid them. Prof. Davies argues, “The less time and money we spend trying to work around a complex tax code, the more time and money we will have available to put to more productive uses.”

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