> Increasing taxes reduces the money supply I don't doubt it, but I'm curious about how it works: If I buy a car from GM, who then uses the money to buy thing

> Increasing taxes reduces the money supply I don't doubt it, but I'm curious about how it works: If I buy a car from GM, who then uses the money to buy things from suppliers, who use the money to pay some people and build a new factory, etc. - that all increases the velocity of money which increases inflation. If I pay the same amount to the government, who then uses the money to buy things from suppliers ... how does that have a different inflationary effect? I'd guess that the government, with less revenue than expenses, doesn't save the tax revenue. It's not stuffed in a giant mattress at the Treasury. I would guess that it's spent, pretty soon. In fact, there might be more velocity if I give the money to the government than to a company sitting on fat cash reserves. EDIT: I just realized: Higher taxes reduce return on investment and thus reduce investment. Is that the only mechanism in play?