I am a Business Owner
I am a business owner. Therefore, I am in essence like a government. In the business that I own I pay all of my employees based on a commission structure. The more a person produces, the more they earn. The government works in much the same manner. The money that comes in rightfully belongs to the person that earned it minus whatever percent that I must keep to cover company expenses. So basically the company cut functions similar to why government must have a tax.
My employees receive the lion’s share of the proceeds that come in. The reason the lions share must go out to my employees is pretty simple. It is because I would rather have a little bit of something versus a whole lot of nothing. In other words if I don’t provide the incentive for my employees to produce via adequate compensation, they simply won’t bother producing. The same is true when it comes to taxation by government. Great Britain just proved this to be true when they raised their top rate to 50% and the net results were lower tax receipts due to lower overall production. Both the government and I must seek out the rate at which we can both cover our expenses while at the same time ensuring the incentive for people to continue producing. In economic terms it’s called the Laffer Curve.
Furthermore, I must continually strive to maintain efficiency in company expenses because I know that there is only so much of a percentage that I can ultimately take from my employees until they stop producing. Therefore, I can’t allow my expenses to exceed that amount or else the net result is a negative. The best I can do revenue wise is to take just the amount dictated by the Laffer Curve, nothing more, nothing less. Once again, the government must face this same reality.
It would do me no good to take compensation from my better producers and give it to my weaker producers as some sort of “fairness”. Not only would this not increase overall production, but it would actually decrease it. My weaker producers would begin producing even less since they know they will receive a better share no matter what their personal production levels are. Conversely my stronger producers would slow up because they would realize they are no longer getting compensated for their extra efforts.
This illustration is real. It perfectly details why raising taxes beyond what the Laffer Curve dictates actually reduces net government revenue due to reduced production. This is why higher taxes usually mean less money to the government. It is also why socialism and wealth redistribution never work. It explains why these concepts always end up playing to the lowest common denominator of productivity. Wealth redistribution doesn’t make the lower end more productive, it only makes the upper end less productive. The government is just like my company where production means everything. Just like what would happen if my company were to fail, if the government doesn’t seek a taxation balance while also allowing for those who are more productive to thrive, then we all end up suffering in the end.