[ffusco]

Great explanation. What do you think of this analogy?: Money taxed is generally spent for near term goals or wasted by beauracracy. Money not taxed has a greater chance of being productively used or invested. I.E.buying lumber, employing carpenters and building a house. The house adds value to the GNP so more money must be printed to prevent deflation.

[JLS]

It is true that more production allows the government to print and circulate more money without extra inflation.

But again the government only has the money temporarily. They spend it on something and it goes to someone else. Depending on the tax incentives they may or may not use it for productive uses.

But as I said above, tax changes do not generally have big effects on turnover of money. They do provide incentives on how private holders of money turn it over. Not how quickly they turn it over, but on what they spend it.