Economics: Shackling the Invisible Hand

Why raising taxes on anybody always hurts the poor
Economics by a computer geek.

Disclaimer: I have no Economics background except for an exceedingly easy Microeconomics class in college.

Premises:

1.       People don’t let you take their money without a fight.

2.       If you take money away from a person, that person will try to get it back any way they can.

Scenario: Taxing the “rich”

Let’s start with the premise that most people have today. To be “fair” is to take a greater percentage of money from the “wealthy” and redistribute it to the “poor”. I put these terms in quotes, because they are thrown around very liberally without regards to their true definitions.

Action:

Increasing taxes on the “rich”

Reaction of the Working [1] and Non-Working[2] “rich”:

Increasing taxes on any group results in a reduction in income (i.e. taking money away). Thus, according to the Premises, the "rich" will attempt to get their money back.

The only way to retain your wealth/standard of living with less money is to spend less money. This will come in the form of cheaper, foreign made products, or just abstaining from purchasing luxuries. The net result is less money going into the economy, sustaining businesses. See the next section for the results of that.

Reaction of the Working “rich”:

There is a twofold effect on this class of people. First, all the “rich” that can’t regain their money any other way will be buying less goods and services, which results in less income. Second, this group of people is also hit by a reduction in personal income due to the tax increase. These two factors combined results in choices for this group, some of which are:

1.       Raise the prices of their products (bad for the”poor”)

2.       Fire some employees and make the remainder work harder to produce the same product (bad for the “poor”)

3.       Fire all the employees and outsource to a cheaper, foreign source. (really bad for the “poor”)

Result:

The “rich” get some of their money back by either:

·         keeping it by not spending (the non-working “rich”), or

·         raising the price on products we want to buy, or

·         firing some workers (the “poor”), or

·         firing all the workers (more of the “poor”), or

·         some combination of all these

None of these outcomes helps the poor. Since the “rich” are “in power”, they dictate the pricing of goods and services (within the tolerances of the market) and who retains and loses his job. So, raising their taxes does NOT help the “poor”.