When the United States, and even the individual states find themselves in turbulent financial times, a commonly repeated theme they tend to repeat is that taxes need to be increased in order to shore up revenues. When states and countries find themselves with budget gaps, instead of trimming programs (so called ‘belt-tightening’ in the private population) they tend to attempt to keep the same level of programs by increasing the tax rate. Is this practice sustainable?
I will write this article in two pieces. First, in this article, I will cover the theoretical aspects of why this is not automatically true. In the next article I will give you some empirical data which you can examine and either agree or disagree with me. Let’s begin.