When you raise taxes on a company or business, the first thing the business will do is look for a loophole. It's just human nature to look for a way to save money. If the company finds a loophole, then the tax increase becomes irrelevant.

But if the business can't find a loophole, they'll look for some other way to cut back in order to pay taxes. For example, they might go to cheap parts and supplies. That means a lower quality of product.

If there isn't any loophole, or cheap parts or supplies aren't available, then the company will be forced to lay off employees. This is where outsourcing comes from--a company is forced into cutbacks by high taxes. Most American companies would rather have American employees so they don't have to deal with the language barrier or time zone difference, or cultural barriers such as foreign holidays that don't coincide with American holidays.

The misfortune of layoffs is that the last person hired is the first one fired. The person with the longest time at the company has the most knowledge of how to do the work, so that person stays. The person who needs the job the most, i.e., the most recently hired, is the person to be laid off. And it's done in order to pay taxes.

When, or if, the laid-off employee collects unemployment compensation, then the situation has created a negative cash flow for the government.

Now let's look at tax cuts.

When taxes are cut and the companies know that the rates will stay at that amount, they're able to budget that money for investment. One of the buzz words coming out of the 90's was "venture capitalism". People don't just put their money in the mattress--they invest it to get a return. Some of the ways a company might invest that money could be to build a new office building, get a new computer system, or buy a new fleet of company trucks. Or they might even use it to hire new employees. The point is to invest that money into something that will make the company more profitable, whether it's better efficiency or making the employees more productive.

The new office building means construction jobs. The new computer system means IT jobs. The new fleet of company trucks means automotive jobs. And these are just examples. There are dozens of other ways to invest that money in order to create a return. What is important here, is that this investment creates jobs.

Each time that an employee gets a paycheck, there are deductions for Federal income taxes, state income taxes, and other deductions such as Medicare and Medicaid. So the government gets its cut of the income. On the way home from work, the employee will stop and buy some gas. Each gallon of gas has a federal excise tax of 20 cents. Many states have excise taxes between 15 and 22 cents per gallon. On a 10-gallon purchase, the employee is paying $2 in federal taxes and between $1.50 and $2.20 in state taxes. So the government gets its cut of the income.

Then the employee gets home, and makes a mortgage payment. Most mortgages have an escrow account to set money aside for property taxes and insurance. Most landlords will figure in enough money in the rent payment to cover the cost of those property taxes and insurance on the rental. Property taxes are used mostly to pay for local schools. So the government gets its cut of the income.

After that, the employee will make his utility payments. Utility companies are highly taxed and highly regulated, including environmental charges and fees. So the government gets its cut of the income.

With what is remaining of the employee's paycheck, he will buy food, clothing, consumable and durable goods. Many of those will have sales and other taxes. So the government gets its cut of the income.

Another point to take into account here is the population numbers. The U.S. population is well over 300 million. If only 2/3 of that population is working, 200 million, then that's a huge amount of taxes being paid.

The end result is that raising taxes increases unemployment and causes a negative cash flow for government. Lowering taxes cuts unemployment and creates a positive cash flow for government. This is why raising taxes doesn't bring in more tax revenue. It actually does the opposite.

This concept was proven beyond a doubt during the Reagan years, when the U.S. had the largest peacetime economic growth ever. We also experienced this same kind of growth between 2000 and 2007 even though the media tried to talk the country into believing the economy was bad. The years 1976 to 1980 proved beyond a doubt that raising taxes causes high unemployment and a stagnant economy.

Clearly the best choice for the U.S. and any country, is to cut taxes so that businesses can grow. That growth trickles down to everyone so that all people enjoy prosperity.