Taxes 101: The Laffer Curve

Here is a nifty three part video series by Daniel Mitchell of the CATO Institute on how taxes influence people's behaviour, and consequently, the ramifications to the economy.

Part I: Understanding the Theory

Part 2: Reviewing the Evidence

Part 3: Policy Analysis Via Dynamic Scoring

What we'd like to show is that government spending always impact tax policies but to a diverse degree. These ultimately affects people's behavior which subsequently will be manifested on the performance of an economy and the state of capital (wealth) accumulation/consumption.

It's also very important to point out that taxes has been a highly sensitive political issue such that in certain periods of history, public uproar against taxes catalyzed revolutions.

Example, this article from Murray N. Rothbard,

"Seventeenth-century French kings and their minions did not impose an accelerating burden of absolutism without provoking grave, deep, and continuing opposition. Indeed, there were repeated rebellions by groups of peasants and nobles in France from the 1630s to the 1670s. Generally, the focus of discontent and uprising was rising taxes, as well as the losses of rights and privileges. There were also similar rebellions in Spain in mid-century, and in autocratic Russia throughout the seventeenth century."

Bottom line: Be wary and leery of politicos advocating for more government expenditures because these eventually translate to higher taxes, which translates to a lower standard of living.