One of the major differences between the political parties is their attitude toward taxes. Republicans want (in theory) lower taxes and smaller government. Democrats want (again, in theory) more government services and income redistribution, of necessity paid for by higher taxes. And overlaid on these ideological differences is the short-term question of how best to stimulate the economy and create jobs in the current recession.
Democrats persist in thinking (or at least in arguing to their supporters) that if we would only tax the rich more, and tax "rich" corporations more, we could pay for all the lovely liberal government programs they would like. Republicans persist in believing that cutting taxes solves all economic problems. Both views have kernels of truth, but both are naive oversimplifications.
In fact the wealthiest 1 percent of the population already pay about 37 percent of the total personal income tax. The top 10 percent pay about 68 percent of the tab. Meanwhile, the bottom 50 percent—those below the median income level—pay just 3 percent of the taxes. So in fact the rich are already being soaked. But it is in general only the rich (or at least those above the median income level) who have enough discretionary money to invest in businesses, which are the economic engine of the country and the ultimate source of government revenue, so money extracted from them for taxes is not available for investment. Supporters of taxing the rich more argue that the rich "save" most of their untaxed money, rather than "spending" it to drive the economy, so that tax cuts to the rich are less effective as an immediate economic stimulus, which is true. But what does "save" really mean? It means they invest most of it, either directly or through banks or funds, which creates more business and more jobs in the long run.
As for the Republican argument, it is true that higher tax rates have a negative effect on the economy. For businesses, taxes are an expense, and the higher their expenses the less competitive they are in the world market. For individuals, taxes reduce their discretionary income and hence their purchases, which in turn reduces the volume of the economy. On the other hand, the government needs revenue to do the things the electorate would like them to do (like maintaining the streets and protecting the nation). If we don't tax enough to do these things the government's only alternative is to borrow money, which is what has gotten us into this fiscal mess in the first place.
The issue of tax rates cannot be separated from the question of what services the government will provide. If we want more services, we need to tax more to pay for them, but that impacts the economy and ultimately reduces tax revenue. But if we want less taxes, then we need to reduce the services the government provides us, so that the government can pay for the remaining services with the reduced tax revenue it is receiving. (this isn't rocket science, but most politicians act as if they don't understand this).
So rather than argue about tax rates, we really ought to be arguing about which government services, at what level, we are willing to pay for -- that will determine the optimal tax rate. And clearly, since at any tax rate government revenue is tied directly to the size and health of the economy, first priority ought to logically go to government services that support, sustain, encourage and promote private enterprise and jobs - the ultimate source of government revenue.
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