Quote:
Originally posted by sgtclub
You are viewing the pool of taxable income as static. Essentially you are saying that we have $X to tax at Y%, so if we reduce Y then we have to make up the tax revenue from other sources. That is what I meant by static.
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That's not really what I'm trying to say. Actually, I believe that the pool of taxable income decreases. To take one example, a dividend exclusion means that income goes from $X to ($X-% of dividends paid). If the amount of the exclusion were put to use in capital investment, it still wouldn't increase income as much as leaving the money in corporate solution, because it flies in the face of reality to assume that all dividend distributees will invest 100% of their dividends received.
You can also look at a rate reduction the same way. A portion of the freed up income will be consumed, by lower-income taxpayers on things like inexpensive imported goods at Wal-Mart, and by higher income taxpayers on imported goods like BMW M5s.
