This question was asked elsewhere on the internet: How would you explain it to a 5-year old why higher taxes on the rich doesn’t fix everything? This is my attempt to answer it. He will judge.
There are two aspects to money: having it and spending it. Taxing merely moves the money from one hand to another, and arguably not to the best hand when it comes to decide how to use it.
Imagine you have $5. You can spend them on an amusement park ride and they are gone; or you can invest them in a neighbourhood lemonade stand, provide others with a valuable service and maybe become rich. Once you are rich you no longer need to beg daddy for more pocket money. Which is better: begging for more pocket money or earning your own money?
If you come back asking for more pocket money, daddy can refuse. Unless you are the government. Then it is called tax. Government has the power to take money away.
Now, imagine a classroom friend with $5 and the same choice: the joyride or the lemonade stand. While you choose the lemonade stand, your friend chooses the joyride. At the end of the day, you are rich and you have provided a useful service to the neighbourhood. Your friend just had a good time. Your teacher asks the class to contribute to a class trip. Because you have invested your money wisely you have the means to contribute. Your friend does not. When the teacher asks for money, you can refuse. Unless she is the government. As government she can take your hard earned money away and use it for a joyride. Is this fair? Under such circumstances, wouldn’t you be tempted to choose the joyride in the first place? But if everybody chooses the joyride, there will be no money left to tax and most important, there will be no neighbourhood service.
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