My initial objection to your first illustration is that you show taxes as something that just drains away and yet you also show government spending as being supplied by some magical faucet. Surely the taxes gathered are the source of government spending in a continual cycle. In terms of money draining away I suggest that this should be regarded as profits taken out of the system by companies and investors. Taking more profits out of the system (ie the economy) leads to inflation. So increasing taxation only on profits may control inflation.