Scenario 2:

I cut the taxes by half to 5%.

Year One:

Harvested                  100 units
Taxes                          5 units (I have to learn to live on half income this year)
Family                         50 units
Plants                          45 units (more left over from less taxes)

He is now able to plant  12.5% more.  This is a form of investment.

Year Two:

Harvest                       112.5 units
Taxes                          5.625 units (still low)
Family                         50 units
Plants                         56.875 units  (42% more)

Year Three:

Harvest                       142 units (I am going to round now)
Taxes                          7.1 units (better)
Family                         50 units
Plants                         84.9 units (112% more)

Year Four:

Harvest                       212 units
Taxes                          10.6 units (more than ever!)
Family                         50 units
Plants                         151 units …

And so on.

Notice that by reducing the percentage of taxes, in only 4 years I, as the lord, am actually bringing in more money… and the pattern will continue.

There is are some comments worth making here – first, is the serf’s Family number truly static?  I mean it is static as a minimum… but as a maximum?

I asked an actual tax and money expert about this scenario and he pointed out that even if the serf raised his standard of living and started living on 60 units, 70 units… trading 5 units for a new upgraded hammer from the blacksmith, etc… that his new purchases would still create taxable income for the blacksmith, now.  So the concept still applies.

In fact, it means that the serf’s quality of life continues to go up even as the government also makes more.  Welcome to the concept of a middle class.

What if the serf starts saving the excess in case of a rainy day?  Then praise God, because that means that if a really bad year happens, he can still plant the next year and I can still get taxes.  Him saving may defer my tax income, but it also protects it long term.

Even better for an overall economy, what if he starts hiring workers under him?  Each of them start paying taxes as well!  Soon, I could be a lord with other lords working under me, sending the taxes rolling in.  Few jobs are created by poor people.

This is the basic principle – take money out of the system and it doesn’t grow.  If it doesn’t grow, the economy shrinks.  If the economy shrinks, tax income shrinks.

Right now, we are producing tax revenues that are a great deal less than out costs.  We are Trillions of dollars behind… you can look up the approximation of the discouraging news at www.usdebtlock.org … so we have to actually work our way back to the status quo (see the conversation in comments with Lauren) and  sadly, more taxes just reduces our ability to do that over time… so I think our only sane option is to cut spending radically.

Just my thoughts.