Final answer:
Congress could maximize revenue from installment sales by applying the return of capital principle in a way that aligns with fair taxation and stimulates tax revenue over the installment period. Factors like the elasticity of the supply curve for financial capital would also affect the outcomes of such policy adjustments.
Step-by-step explanation:
If Congress wanted to maximize revenue from installment sales, it would need to apply the return of capital principle in such a way that maximizes the amount of taxable income while still aligning with the principles of fair taxation and economic efficiency. Maximizing revenue can be tied to government borrowing, where instead of immediate payment, the income is recognized over time as payments are made, which could potentially allow for higher tax revenues over the lifespan of the installment sales.
However, Congress must also consider that modifying the return of capital approach could impact taxpayer behavior. If supply curve for financial capital is highly inelastic, changes to tax policies might not significantly increase savings or investment. Still, if those curves are more elastic, a better-calibrated tax system could spur greater savings, investment, and consequently, higher tax revenues over time.
In the broader context, as Hamilton suggested, relying on the financial support of wealthy citizens holding government securities can encourage ongoing investment in government initiatives. When the securities serve as capital for business ventures and internal improvements, it can foster overall economic growth, potentially increasing the tax base and thereby generating more revenue in the long term through increased tax payments from growth business and employed individuals.
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