The myth that higher taxes bring the government more money

http://townhall.com/columnists/AmandaCarpenter/2008/05/08/obama_i_will_raise_taxes

Its election time, and oh so predictably come the clamors from the Democrat party about raising taxes to really stick it to those evil, evil CEOs and "Rich People" (an intentionally vague moniker designed to make people irrationally envy/hate those who prove that anybody can be successful in America despite the government's constant interference, but thats a rant for a different time). But does raising taxes truly bring in the money needed to magically make all those wonderful but "underfunded" (read, pilfered) social programs break even? While raising taxes does bring in an immediate influx of cash into the black hole that is the National Budget, in the long run they miss out on all that wonderful growth that money could have generated in the long run. To demonstrate, lets look at a very simple math problem:

Lets say we have an initial capital of $5000 with both a 20% and 80% tax rate and a yearly 5x growth over a period of 5 years.

Gross Capital - Tax rate = Net Capital x Growth = Gross capital

80% tax rate: 5000 - 4000 = 1000 x 5 = 5000 - 4000 = 1000 ad infinitum
Yearly intake of $4000 for a 5 year intake of only $20,000 for the government

20% tax rate: 5000 - 1000 = 4000 x 5 = 20000 - 4000 = 16000 x 5 = 80000 - 16000 = 64000 x 5 = 320000 - 64000 = 256000 x 5 = 1280000 - 256000 = 1024000
1000 + 4000 + 16000 + 64000 + 256000 = $341,000 intake over a 5 year period

As one can clearly see, a lower tax rate generates more taxable income over a long period of time as opposed to a higher tax rate. I encourage you to try out your own numbers, and to check out these pages for more info (and cool charts)

http://www.heritage.org/Research/Taxes/wm1835.cfm
http://www.heritage.org/Research/Taxes/bg2095.cfm