According to that much-derided "trickle-down theory," raising taxes can at some point actually reduce tax receipts. The Laffer Curve represents the effect on behavior of rising tax rates. At some point, raising taxes decreases rather than increases government revenue:
American Thinker "In 1992, Ross Perot famously stated that NAFTA would cause a "giant sucking sound" as jobs and industries fled the U.S. for Mexico. For years, progressive Vermont's bloated bureaucracy has increased regulations, social programs, and income and real estate taxes in the fantasy that the rich can just be taxed more to achieve every imagined social good. But the COVID-19 crisis has pulled aside the fiscal veil, and now the Green Mountain State is careening into the red. A "giant sucking sound" is heard from Vermonters fleeing the state.
"Vermont has stubbornly avoided funding its state pension system. It "boasts" the second highest per-pupil school costs in America, the fourth highest health care costs, and the fourth highest welfare benefits. Unsurprisingly, it also distinguishes itself as the 49th worst business climate and the only state to have its credit rating downgraded in 2019 — when economic times were relatively good.
"Liberals scoff at supply-side economics (the idea that cutting taxes causes a "trickle-down effect" that boosts investment, income, and ultimately tax receipts). But taxes do matter." . . .
. . . "The Laffer Curve predicts that at some point, increased taxes do cause people to change behaviors in a way that undermines tax revenue. Vermont is well past that point by every standard — and people are leaving. It's not the wealthy fleeing, but the common workers and businesspeople who see greener tax pastures over most all neighboring state fences. Reducing taxes in Vermont by reducing expenditures would help these residents, not imaginary tycoons who don't reside here." . . .
