Fun With Taxes

Well, okay, not fun for most people, but I’m a political theorist so I like economic theory-supply side theory, of course. So here is a basic explanation of some economics and taxes. And don’t worry, this is in plain and simple English.

Liberals often complain about tax cuts for the rich, but this totally ignores, or trivializes the fact that higher income taxes in the first place. More importantly, however, unless they are locking all their money away in a wall safe (which they don’t because letting your money sit is stupid, especially in inflationary circumstances) they will be putting their vast wealth into the economy. Capital is the fuel for the economic engine and the “rich” have the most capital. Therefore, their investments are critical to driving the economy forward. Growth, incidentally is good because it improves standard of living, which is good, unless you hate humanity you dirty Marxist space aliens you. But how do they spend it? Well, if they put it in a bank, the bank invests it or loans it to people and pays back interest. Or, they could buy products, or anything you or I could do, but on a much larger scale. But crucially, the ultimate destination of many of their dollars is into your pocket, because chances are your employer is richer than you. No, scratch that, I basically guarantee it. Now what happens when they have less money? You get paid less, or fired, or outsourced.

What motivation does anyone have to work, when they don’t really profit from it? Why work harder if you can’t further yourself (and, come to think of it, why work at all if your security in your income is insured by welfare?), what incentive do you have? And why raise yourself up if it will just be taken away from you? And why try to profit in a place where the government makes it difficult, especially when you can do things easier elsewhere?

Its quite simple, really. Money moves down the chain from employer to employee, from the producer of manufactured goods to the consumer, from your mouth to God’s ears.

So please, next time your raggin’ on the rich, remember how Capitalism works. And next time you feel like you’ve been screwed by the market, just think of the poverty stricken horrible, low quality lives of those living in traditional, underdeveloped economies and think: There but for the grace of Smith goes yee.

(Incidentally, there is one way to stop the flow of money-hoarding it under your mattress! So for the love of Hayek, don’t just let your money depreciate in these tough times-spend it (but intelligently of course, investing it in something that will pay off, or putting it in a savings account with a good-but not absurd-interest rate, and don’t ever spend more than you actually have)!)

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