Comments:Australian treasurer attacks opposition leader's tax question error

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There is something I don't get about taxes: With higher taxes, the government gets more money... But with lower taxes there are more transactions resulting in things being better for commerce, individuals paying less taxes, and the government getting the money lost with the lower taxes from the extra transactions. Contralya 01:18, 20 September 2007 (UTC)Reply

And so you do understand, grasshopper. It's the same for any business, lower your price (by lowering your profit margin) and you increase sales, hence profit; raise your prices and increase your profit margin, but reduce your sales. (Similarly, reduce quality, reduce costs, but perhaps reduce market share.) Every business needs to find the balance, the highest Profit = Sales X (Profit-Margin - Costs). Reduce your prices below this, and you hurt your profit more than your sales increase; increase your prices and you hurt your sales more than your profit increases.

Every country has a similar balance, between tax-rate and economic activity, to give the highest government revenue. (Similarly between the economic brake of taxation, and the social advantage of government spending; government's "cost vs quality".) The thing to remember is that there isn't a magic formula or model to tell you where the balance point is. So it generally comes down to ideology and hindsight, distorted by... well, distortions... such as economic booms/busts. "We are proven economic managers!!!" "No, they're just riding the resources boom, spending like drunken sailors!!!"