If you want full employment for yourself, you may create all your own products and do all the services you desire all on your own.  As soon as you trade with one other person; you are depriving yourself of doing the labor yourself.  One trades their chicken for someone’s bushel of corn because it would make them better off.  Let us say that it takes the corn farmer one hour to grow that extra bushel of corn, and it takes you two labor hours to grow the corn.  Similarly, let us say that it takes you one labor hour for you to raise another chicken and the corn farmer takes two hours.  You both realize that if you both use one extra hour to make an extra bushel of corn or raise another chicken and trade; you both would save an hour each while attaining the same products.  You both free that hour up for leisure or creating new and different products for yourself. 

Once you add a third person to your trading universe, a new dynamic enters.  The third person can take business away from you.  The new person may sell rabbits, sheep, or cows for meat.  The person you were selling your chickens to, now has other options to buy their meat products.  However, you now have a potential new customer to sell to and new products to purchase.  You might need to have a discussion about what they both want and explore if you wish to compete to provide that service.   All three people will have that discussion, and there would be real competition to see who can serve the other two the best.  As more people enter the trading universe from three to dozens, then hundreds; many people will provide products and services that you were offering, and you gain a more extensive potential base of people to buy your product. 

There will always be new producers that come in and impact a small percentage of producers.  Some new producer will out-compete or under-sell a few people.  Those people negatively affected will be angry and try to come up with reasons why society should ban by law the new producers.  They will claim the new producers need to be protected by forbidding them from selling at low prices (minimum wage laws).  There are dozens of similar laws framed as protecting the new producer that result in putting the new producers out of business.  Every new entrant into your trading world gives you a larger market in which to sell your product and potentially someone that will produce what you sell and beat you in the competition of serving their fellow man.

If two neighboring 500 person towns who both had complete protectionary law, decide that they should allow trading, many people will lose their jobs to others in the neighboring town doing a better job.  Consumers immediately see the benefit of better products and better prices.  All the people that lost their jobs now need to seek out additional products or services that the population of 1,000 will likely buy.  As more product options are at the market place, all 1,000 people will have a greater consumer choice.  If individuals buy across town lines, it is foolish to state that Town A bought from Town B.  It is foolish to think that if people from Town A bought $500 of product from people of Town B, that those people in Town B doing the labor and serving the people in Town A; would not want products and service in exchange.  Outside of personal relationships; people only serve others when they have a valid expectation of offering the money they earned in exchange for being served.  

As your thousand-person economy grows to millions of people, a more significant division of labor is possible to gain efficiencies and greater productivity.  Almost everyone is outcompeted by the economy of producers and consumers growing thousands of times larger.  We went from a neighborhood to a large city.  Everyone needs to continually change how they are going to produce to out-compete everyone else. With a million-person economy, everyone can win in that competition.  They just need to produce products or get good at providing a service that has a history of being bought.  Prices develop; however, the nature of prices and business is that consumers are always trying to find better products at lower prices.  Every producer must always strive to meet that demand for lower prices, increased quality, and greater convenience, to fend-off other producers.  This is the base of competing to serve your fellow man better than others.

As the million-person city grows into a ten-million-person state economy; competition and choices expand as well as your market to sell your products and services to ten times the consumers.  Business models of successful companies tend to be bigger companies.  A higher percentage of people see their best option is to provide services to a company as an employee.  Big corporations specialize in creating a well-planned division of labor so that each employee can concentrate all their work efforts to just one aspect of creating a product.  Big corporations are always looking at every aspect of their company to be the most productive.  Often times, that means a vendor can produce a product or service better than direct in-house employees.  There are many situations where former employees saw better opportunities to start their own business, creating the same function as they did as employees, even becoming a vendor for their previous employer.

As the ten-million-person state moves into allowing trade among 330 million people in all of America, the circumstances change significantly.  33 times more competition and 33 times more customers.  The consumers have 33 times as many options.  People’s quality of life grows.  No longer do the people in Maine need to pay the high prices of orange producers that required greenhouses.  No longer does a car company need to source all their parts from within its state.  No longer does a potato farmer in Idaho under-utilize their land because of the limited market within the state.  Silicon Valley can utilize many labor hours creating great products, and mass produce copies very inexpensively; thus, the greater consumer markets reduce the per unit price.  There is a need for exceptional talent within companies; thus, these companies need the ability to offer jobs to talented people from across America. 

Without a doubt, the US Constitutional provision regarding the requirement of free trade across America advanced this nation’s living standard significantly.  Zero people survived their job being destroyed by competition.  Every year business models transition.  Every job, by the necessity of competition needs to gain productivity; and productivity is by definition making the same item with fewer labor hours, and that means total labor hours of the thousands of inputs of a product.  There is nothing legitimately different from expanding your trading universe from 1,000 to 200,000, compared to 200,000 to 8 million or 8 million to 330 million.  Going from 330 million to 7.5 billion is just another expansion.  All trades are still from person to person.  Money, if done right, always returns the services and products to the people who provide services and products. 

There are about 7.5 billion people on earth and about one-third billion people in America; meaning about 4.4% of people on earth live in America.  About 23 times more people live outside of America versus inside America.  All the gains of free trade in America can expand to trade with people outside of America.  Other than serious issues of foreign policy where leaders of other countries are destabilizing other countries or harming their own people; there should be free trade.  The only fair trade is free trade.  A tariff to give needed services to facilitate the trade should be considered; however, those services should mostly be provided for in the free enterprise system.  A matching tariff program with the goal of having the other country reduce their tariffs should be explored.

Subsidies are 99.461% economically detrimental.  Economist rarely should state 100% and never so precise as to use decimal points.  Subsidies come in many forms.  Most subsidies come in the tax code.  The tax code is so long because subsidies such as exemptions, deductions, and credits are so numerous.  Every tax subsidy means the tax rate for the fully taxable transactions must be higher to make up for the transactions that have a reduced tax rate.  Higher tax rates for the fully taxable transactions creates a higher disincentive to do the fully taxable activity. 

If China subsidizes steel in an effort to gain market share, they are giving America a significant gift.  China is taxing all the people of China to pay for the labor of people in China to provide America with products.  If it cost China $2 billion to create and transport a certain amount of steel to America, and only charges Americans $1 billion for that steel.  China can now only demand $1 billion worth of products from America.  China sends $2 billion in subsidized products to America, and Americans send China $1 billion of products.  The country of China and the people of China gave Americans a gift of $1 billion.  

The role of prices takes everything into consideration.  Billions of people from around the world, making trillions of decisions create a price for everything.  Ignorance is costly, and knowledge is valuable.  Knowledge also has thousands of inputs.  Every person’s moral values are factored in.  Personal preferences are enormous factors.  The factor of time is massive.  Personal relationships play a significant role.  Laws and regulations seriously hamper the role of prices.  Every change in circumstances changes prices.  Trillions of circumstances change constantly, thus reinforcing the importance and value of knowledge and the detriment of ignorance.

Subsidies interfere with the role of prices.  Politicians state that certain things are good and try to encourage that thing by giving subsidies.  Note: let’s = let government.  Kids are good, so let’s give a tax exemption and tax credit for children.  Family farms are good, so let’s pay a portion of food costs.  Homeownership is good, so let’s allow tax deductions on mortgage interest.  Having a spouse die in combat is sad, so let’s exempt the surviving spouse from real-estate taxes.  Clean energy is good, so let’s require direct government entities buying energy to buy clean energy.  It is sad to be poor, so let’s give poor people money.  Renewable energy is good, so let’s force everyone to add it to gasoline.  Education is good, so let’s give teachers tax credits for classroom supplies.  Research and development are good, so let’s pay companies that do the research. 

The role of prices already factored in all the good and bad.  Politicians have extremely little knowledge compared to the role of prices.  Billions of people using their own brains, knowledge, values, planning, and preferences possess tremendous information.  One or a relatively few politicians and bureaucrats could not even approach 1% of the knowledge, experience, planning, or caring known by the invisible hand using the role of prices.  Having government add to or subtract from the cost of one side of the transaction adversely interferes with the role of prices.   

Any American may outbid low wage immigrants or technology if they wish; although labor law often forbids competition on price.  Americans will leave a job if someone else outbids their lowest hourly wage.  If the money is sent overseas and returns, there is a demand for services somewhere.  If the immigrant earns wages in America, they want services in exchange for their labor.  The demand always comes back.  If one hundred out of work Americans team up to start serving each other, they can start their own small economy.  Any out of work American is freed up to start producing something of value and offer to sell it to the world of 8 billion people.  No American must wait to be hired.  In the free enterprise system, anyone can produce or offer their services to trade.  There is not a set amount of jobs.

The free enterprise system is a competition to serve others.  The person turning over their money decides who wins that competition; however, there must be a bid for that service.  All transactions are two-sided agreements.  No one can force someone to accept an offer to be served.  No one can force someone to serve them.  If someone has been making a product or providing a service for a long time and receiving a price that supports a decent lifestyle; that person does not want the competition to take away their business.  Whether it is a competitor that charges the same price but takes half the customers or a competitor that charges 10% less.  The person’s income is adversely affected.   

A competitor with a different product can also attract the business of consumers.  A business or employee can attempt to change the business model to seek to regain the business or employment.  However, at a certain minimum pay level, they need to seek other opportunities.  This is true whether it is products from your neighbor, from an overseas business, a low skilled immigrant, or business model that mass produces the product with new equipment and machines.  No one likes to be beaten; however, in the free enterprise system, every time someone is beat, everyone else benefits.  People notice the thousands lost by the one or the few people being beat and not the pennies saved by each of the millions of consumers.  A study of those that lost their jobs due to lower costs in one industry, often find better opportunities and pay.  Of course, the concentration by many is on those that do not thrive long term.   

This paragraph assumes relatively free markets; however, realizing the people of the world have a long way to achieve a free market.  Government intervention in the markets almost always diminishes an increase in productivity.  The vast percentage of time when Americans send a job overseas, Americans and people of other countries increase their level of productivity.  Additionally, people have to work in their jobs a shorter period of time to buy the items created with higher productivity.  Some people will contend that it takes 10 working hours in India to create the same product America could produce in 5 hours and claim that the overall productivity is reduced.  That reasoning seems to make sense; however, it does not hold up under a full examination.  The increased productivity of Americans selling products to whoever brings that money back to America will increase overall productivity.  Remember the overwhelming truth of free markets; both sides of a trade become better off.

There is a big debate about who pays tariffs.  Tariffs are one type of tax.  It is true that the buyer pays 100% of the tariffs, and it is also true that the seller pays 100% of the tariffs.  Many people will argue one side or the other, depending on their policy preference.  The only place the money can come from to pay a tariff is from the buyer.  On the other hand, if a 50% tariff is on a product that cost $100, the seller needs to charge $150 to the seller.  If a buyer is willing to pay $150 for that product, it could be well reasoned that without the tariff, the seller would raise their price to $150 for that product and make a more substantial profit; thus, the tax is paid for by the seller.  It is true that the role of prices and competition will shrink that profit margin; however, the business would benefit from a much higher demand at the lower prices.  A whole host of factors come into play.   

With few exceptions, taxes are on a transaction.  If the sale does not happen, no taxes are levied.  The buyer and seller must agree on the price of the transaction.  A tax such as the income tax is said to tax the seller and taxes such as a sales tax is said to tax the buyer.  In reality, the tax is on the transaction that both sides must pay.  If there is an income tax of 50%, a seller must price an item for sale at $200 to receive $100.  If there is a sales tax of 100%, the price of the product is $100, and the buyer must pay $200.  Both ways, the buyer spends $200, the seller receives $100, and the taxing authority receives $100.

Without this tax, a hundred economic realities come into play.  The price will likely fall between the $100 and $200 marks.  If the government is not taxing, are they still providing the needed services?  Are other taxes increasing?  Does the buyer or seller have to pay for the services not provided for by the government?  It is difficult to hold all other issues steady to focus on the reduced taxes, but the overall role of prices and competition will force prices to a steady range, although constantly in flux as with all prices.

The competition of customers seeking lower prices always push prices down, and the necessity of expenses to produce a product puts a floor on price.  Without the tax, the seller might increase the quality of the product, increase wages of his employees, invest in better equipment, and lower the sales price of the products.  The demand for that tax margin, once gone, will be numerous.  Employers doing it poorly will go out of business, and the employers making better choices will thrive.      

There is a large Laffer Curve effect with tariffs.  Every potential buyer and seller must have an overlap in the price for the transaction to occur.  Every overlap in price is different.  As the tax rate on the transaction increase, the overlaps are overcome, and the number of transactions decreases.  The Laffer Curve recognizes that increased tax rates, increase the amount of money collected from each transaction; however, also reduces the number of taxed-transactions.  No taxes are collected from a transaction that does not happen.  At low tax rates, an increase in tax rates will create more tax revenue; however, there is a point where reduced transactions reduce overall tax revenue. 

Every Laffer Curve is different based on hundreds of factors.  The Laffer Curve is the tax revenue line sloping up at low tax rates, leveling off in the middle, and dropping down to $0 when the government takes 100% of the zero taxed-transactions.  The reason for the curve is because every buyer has their point where the tax rate pushes the purchase outside their top buying price.  The rich will have a much higher buying price compared to the poor.  The increasing tax rates stop the transactions of the poor much faster than the rich.  Taxing the transaction between a poor person and a rich person or wealthy corporation either taxes the poor person or pushes the overall price of the product out of the reach of the poor person.

There are products with significant price overlaps and other products with very low-price overlaps.  However, tax rates also change other markets as well.  The complications are too numerous to factor everything in; however, there are economic tax principles that should be considered.  How easy is it to do the transaction outside the taxing authority?  How easy is it to switch to another product with low tax rates?  How easy is it to do without the product?  How easy is it to create the product or do the service yourself?   The easier it is to not do the taxed activity, the quicker the Laffer Curve starts to slope down.

The price of water has an enormous price overlap in that the buyers are willing to pay enormous amounts for water and seller’s expenses for water is quite low.  A 90% income tax or the equivalent 1,000% sales tax could be levied, and people would still buy the water to drink; however, low value uses of water such as watering grass, or car washes would be curtailed.  In contrast, a poor person’s overlap in price with the dealership on a new BMW is non-existent.  As a person becomes wealthier, the cost of the BMW becomes within reach; however, only after they overcome the sales tax on top of the cost of the car.       

One of the main motivations of a tariff is to disincentivize economic activity in specific areas so that higher economic activity happens in other areas.  The purposes of tariffs to some people is not to increase tax revenue, it is to reduce the number of transactions in one place in hopes that those transactions will happen in their geographic region or with them as the producer.  The Laffer Curve is well known and used by tariff supporters to reduce economic activities of their competition in hopes they can get the business.  The tax revenue of the tariff is an afterthought and a bonus, not the point in most cases.    

If the level of overlap in agreeable price is available between the potential buyer and seller, the transaction will happen; however, if there is a percentage of tax that goes beyond that overlap, it stops the transaction.  The whole notion and reasoning behind the Laffer Curve are that every buyer and seller has a different size overlap that can withstand a tax rate.  Transactions that do not happen are not taxed.

If a taxable transaction occurs between two countries or the people of two countries, the taxing authority collects the tax.  So, if China puts up a tariff, China collects the tax.  If America puts up the tariff, America collects the tax.  The tax is paid for by both sides of the transaction as both parties must overcome the additional fee as increased expenses or lower profits.  The country that collects the taxes can increase its level of services or reduce its other tax burdens.

There are many factors and points of view on economics.  This article is to give people a quick understanding of the issues they should be taking into consideration when deciding public policy regarding trade with people or governments outside of America.  Often, people will force themselves to only look at the economic points on the side they want to win or the side their favorite politicians favor.  At the beginning of writing this article, I was 99% free trade; however, after considering all the issues I brought up, I see validation of a few good reasons for tariffs.  I move to 95% free trade.  The 5% is entirely regarding putting pressure on bad government leadership in other countries to treat their people better, to stop terrorism, or to change their policies that do great harm.  

First, trade deficits only exist when accountants leave out information on the spreadsheet.  When all the information is accounted for, there is not a trade deficit.  All trades are equal!  The buyer and seller come to an agreement on price and product; thus, the two sides agree they are identical in value.  Both sides believe they are better off with the trade; however, every agreement defines equal.  The seller receives the exact amount that the buyer paid, thus identical value.  A tax is a fee that has to be paid, similar to transportation cost; however, does not take away equality.  An agreement on trade is typically currency for product, and that is where some people define a deficit.  Their mistake is that they only look at products and not cash.  Cash is something of real worth, creating real equality with the traded products.  It would be wise to adopt a better Monetary Policy as defined in Haley2024 the Movement.

Another significant cause of an apparent trade deficit is that foreigners buy items that remain in America.  Many accountant’s separate foreigners buying products to send back to their country with products they buy that remain in America.  If Americans buy $100 billion of products from China and ship 100% of the products to America, there is equal trade because China has $100 billion, and Americans have $100 billion of merchandise.  If China takes that $100 billion and buys $100 billion of products from America, again, there is equal trade.  However, if $50 billion of the $100 billion of product was shipped back to China and $50 billion was used to buy factories in America; the accountants would list that as a $50 billion trade deficit because the products (factories) did not leave America. 

This is done by having China companies directly building a factory or through buying stocks.  China or the people of China buying stocks and bonds in America directly means that those dollars buy American products and American labor.  The Money China uses to buy a municipal road bond is used to hire Americans to build the road.  China is using the money Americans sent them in exchange for their products to purchase American goods and labor.  The money China spends that stays in America is on the investment side of the balance sheet and directly and exactly matches the ‘trade deficit.’     

Which side of the ocean would you want to be on, shipping away $100 billion of products and only receiving ships with $50 billion of products or the reverse?  On top of the disparity of product, America and Americans also obtain a net gain of $50 billion of investment that leads to higher productivity, better infrastructure, and a better standard of living for Americans.  Too many Americans see the trade deficit as lost money, in fact, it directly means more capital in America without having to reduce consumption.  China is getting the raw deal, less product, and fewer investments, thus lower quality of life.

Many people will be concerned with a trade deficit with a specific country versus looking at overall results.  If America buys $10 billion of products from China and then China takes 10 billion US dollars to buy products from Australia, and then Australia buys $10 billion of products from America, everything balances.  With about 180 countries in the world, the complexity is truly multifaceted.  People of one country save money in the currency of another country.  Mutual funds group stocks from hundreds of companies from around the globe and allow anyone in the world to buy into the mutual fund.  Tourism can cause significant complications to determine how much each country is buying from the other.  The supply chain and employees for many big global corporations are genuinely complex and very difficult to accurately factor trade issues out.  Over time and in the end, all the money must come back to Americans or foreigners give Americans a gift of shipping U.S. products and not asking for products in exchange.         

There is often joy from local leaders and citizens of a locality that lands a big factory.  That factory represents a considerable trade deficit to that city.  Trade deficits are always precisely offset by an investment surplus.  A big $30 million factory is a significant investment surplus; therefore, also representing a trade deficit.  Trying to work out the complexity of trade deficits is undoubtedly more difficult for a city because 99% of products are transported in from outside the city to build the factory as well as raw material to build the products.  Depending on many factors, employees also travel in from nearby localities.  99% of the product also is shipped out of the city.  The issue here is to demonstrate that investments coming into your geographic area, which is an investment surplus, is beneficial to the people in the geographic area.

Often the discussion over minimum wage is clouded by not just a difference of opinion, but a difference in the correct focus.  The Left believes that every person’s labor should be priced related to the laborer's needs.  The Right’s focus is the role of prices of labor in the labor marketplace and the value of that labor to the employer. 

Many people look at the minimum wage laws as only affecting employers.  While it does affect employers, one also needs to realize it is also forbidding by law, some people from selling their labor.  If the value to the employer is less than the minimum wage, the potential employee dropping the price of their labor under the minimum is forbidden.  Thus, the EMPLOYEE is forbidden by law from working.  

​Some employees productivity is low.  These employees bring little worth to the company.  Ultimately the customer needs to find worth in a product or service to turn over their money.  The customer's money is the only money there is to pay the employee.  If the employee cuts five yards of grass and the customer pays $50 for a 10-hour day, that $50 is all the money the employer can pay the employee.  If the minimum wage is $7.35 an hour, the employee is forbidden by law from selling their labor.

This is so elementary, yet so important.  Forgive the kindergarten explanation, but the whole free-market case is built on this.  Once understood, minimum wage laws cannot be justified.  Any trade that both sides agree with makes both sides better.  The minimum wage restricts the trade of labor that would make both sides better-off, thus does harm.  

​A simple example: The going wholesale price for a widget is $5.  There are many people making widgets for company X.  Because of greater experience and education, some workers can produce ten widgets an hour and the inexperienced and the less educated employees can produce only two widgets an hour.  Clearly, the ten widget employees are creating greater value for the company because company X sells $500 of widgets for his 10-hour day, while the two widget employee’s labors produce only $100 for his 10 hours. 
​

​Given that company X has $2.5 worth of overhead and supplies per widget, the laborer cost cannot top $2.5 per widget.  Given that employers pay about 30% over salary in ‘other’ employee expenses, we will work on a minimum wage of $10 an hour (employers cost).  The labor market clearly does not allow all these employees to be paid the same.  The most productive would seek out other opportunities if their pay were the same as those producing much less. 

The ten widgets an hour employee is producing $25 an hour while the two widgets an hour guy is producing only $5 an hour.  Statistics show that every three months, an employee’s productivity increases by one widget per hour until they max out at about ten widgets an hour.  Under minimum wage laws, of $10 an hour (employer cost), people could not be hired until they could produce at least four widgets an hour. 

If the employer has a hard time finding people that could start with a four-widget productivity, it is likely they would invest in more equipment that would allow the more experienced workers to double their productivity, although now the overhead moves to $3.25 per widget, thus leaving only $1.75 per widget for labor.  The elimination of many labor hours is often from less educated and less experienced employees.

Some people state that if the government eliminated the minimum wage, employers would offer only $1 a day.  This low wage is very foolish thinking in that nobody would accept that offer.  Employers must compete with all employers for employees.  Over time, the employers paying more will have on average more experienced, more responsible, more dedicated, more educated and overall better employees.  Better employees are more productive and will ultimately be more profitable.

The Left focuses on the needs of the employee by stating: ‘a person cannot live on minimum wage.’  The Left indicates that the employee's needs are or should be the determining factor in their level of pay.  Let’s say two labors each produced seven widgets per hour, but one employee had to support a family and the other just ‘spending money’ because he is still living with parents.  Should the family man get paid more money because he has a higher need?  If higher pay for greater need were a requirement, employers would not hire people with more significant needs.  

This argument the Left makes usually stumps most on the right.  The Left is still wrong and the Right still right; however, without a quick explanation, well thought out and well delivered, the Left often wins.  A quick response is that there is no additional money.  More importantly, there are no additional products produced.  Either the employee hours were cut to compensate, the business has less money or customers paid higher costs, thus leaving less money in their pockets.  The same amount of money and the same amount of products are in the system.    

First, the government requiring a transaction to meet certain levels means fewer contracts will be agreed to, thus reducing economic activity.  Often, the labor budget is pretty firm.  A substantial change in labor costs will require significant business model adjustments, including shutting down.  If a company has $500,000 budgeted for labor and the labor rate per hour increases, the option is often reducing hours of labor they purchase from employees.  If the price of goods goes up as a result of the increased minimum wage, customers would have less money in their hands after shopping.​

I wept, hearing an interview with a young single mother making minimum wage was truly sad.  However, I wept over what she said.  She did not use these words; however, she wanted lawmakers to FORBID by law, her, my teenagers, and millions of others from selling their labor for what their labor is worth.  There is no slavery in this country, and if she wanted to set a minimum wage for herself, she is more than welcome to negotiate for the $15 an hour and not accept the job for less. 

Fast food companies could pay $15 to much more competent employees that could do the work of 2 minimum wage workers. They could buy more automated machines that require fewer employees or they could go out of business.  If the minimum wage were raised to double the current rate, a high percentage of those close to the minimum wage would lose their job because lawmakers choose to protect these people by forbidding them to work. 

​There are those that lack skill, experience, responsibility, ability, wisdom, self-control or a clean criminal record.  Employers would naturally hire people that do not lack these essential fundamental components.  Potential employees lacking these benefits need the option to outbid others.  I am offended by the ignorance of those that think employers should base their pay scale based on the needs of the employee instead of the worth to the employer or based on the role of prices in the labor market.
​

By Bill Haley 11/8/2018   slight update 4-16-2022 

There are four ways to pay for government services.  The most common is a tax.  Taxes include income, and sales, among others; however, all are a percentage of the transaction.  Borrowing and monetizing are the second and third ways and are used too often.  The fourth is a government mandate that citizens purchase the service directly, however rarely used.  

Because economics is very complicated with hundreds of factors, it is wise to simplify the situation to see the actual effects.  Let us go to a very simple economy of 10 people going to the market every Saturday.  Each person brings ten items and $10.  All items are $1.  Everyone trades.  Everyone leaves with $10 and ten different items.  Money is used to simplify trade.  Everyone buys 2 items from at least one person.​

Everyone agrees that there is a need for a policeman and a soldier.  Everyone agrees that two of them should take on those full-time roles for the price of $10 a week each, and all 10 of them should contribute money to those government services valued at $20.  

If they choose an income tax, everyone’s tax rate will be 20%.  8 people will bring ten items to market, thus 80 items.  The cop and soldier would not bring items to the market because cop and soldier are their full-time jobs.  All 10 people bring their $10, thus $100.  All 10 people buy 8 items.  Therefore all 80 items are sold.  The 8 people bringing items to market now have earned $10 each, plus kept the $2 they did not spend.  

The eight people pay $2 from the 20% tax, thus $16 to the government.  The government pays the cop and soldier $10 each.  The cop and soldier now pay their $2 tax each and even out the government books.  All 10 people come with $10 and purchase eight items for $8.  The other $2 from everyone was taxed to pay for government services to which everyone benefited. 

With this tax rate of 20%, people must be willing only to take home $0.80 for each item versus the full $1.  It is likely that 10% to 20% of purchases are not worth it, and the tax rate will have to rise to about 25% to attain the $20 needed for the cop and soldier.  Higher tax rates lower taxable economic activity.  

A sales tax rate of 25% would be necessary on the eighty items selling for $80, thus attaining the $20 needed for the cop and soldier.  People would now need to be willing to pay $1.25 per item and only attain $1 per item they sell.   It is likely that 10% to 20% of purchases are not worth it, and the tax rate will have to rise to about 32% to attain the $20 needed for the cop and soldier.  It is important to note that there is no sales tax on government services compared to government workers paying income tax. 

Whether an income tax or a sales tax, the government increases the cost of a trade.  Regardless of who collects the tax, the earner or seller, the tax is on the transaction.  During negotiations, both sides share in the tax burden.  The higher the tax rate, the less taxable activity will occur.  People will go without, do it themselves, do it under the table or do it outside the taxing authority.  

Taxes take a percentage of a transaction.  The nature of a two-person agreement of a transaction means sometimes both sides do not meet on price.  If both sides barely overlap on agreeable terms of the transaction, a small tax rate stops the transaction.  A significant overlap in price can withstand larger tax rates.  However, increasing tax rates yield ever-decreasing transactions.  A discouraged transaction yields $0 in taxes and no benefit to either side of the would-be transaction.

If everyone/government chooses to borrow to pay for the government services of a cop and a soldier, the government will have to develop a repayment tax plan.  Therefore, maintaining the harmful effects of the tax.  On top of the adverse impact of the tax, the government debt uses part of the capital needed for capitalism.  

Bringing in additional capital or having a lower level of capital increases interest rates.  Some business plans make sense at 5% or 6% but not 7%.  An increased interest rate lowers the number of business plans that make sense; thus, get started.  Additional government debt can raise interest rates from 5% to 7% for borrowers.  If the government takes 30% of the total capital for government debt, that money is not available for business creation.  ​

Let us explore the effects of the ten people in our small town deciding to monetize the $20 needed for government services.  8 people still bring 10 items each to the market, making 80 items for sale.  All items are still $1.  All ten people come with their $10.  Everyone buys eight items and has $2 leftover.  All eight people bringing items to sell earned $10; thus, they leave with $12. 

The government creates 20 new dollars by simply printing 20 new pieces of paper with the government seal.  The government pays the cop and soldier $10 each.  They also walk away with $12 and eight items.  Everyone comes back every week and buys all 80 items for $80.  Government creates $20 more every week and pays for government services.  Everyone always walks away with eight items.  In the following weeks, people walk away with $14, $16, $18, $20, etc.  

The unwritten agreement to keep all items at $1 each and stop after one buys eight items will quickly vanish.  People will start to bid up prices because they have money left over.  They will get to the market early while the product is still on the shelves and buy more than their share of eight items.  As market prices go up, the cop and soldier will demand higher pay to keep up.  Every time the government prints up more money, prices rise. 
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Money is a service that helps people trade.  Monetizing government services destroys the nature of money, which is a medium of exchange and a store of value.  The two-sided agreement of trade allows money to perfectly regulate services provided and services received into the economy.  Monetizing government services spread the value of money over a greater quantity of dollars, thus devaluing each dollar.  A constantly changing value of a dollar ruins the service of money

One way to pay for government services is to have the government mandate each person purchase the service the government decides needs to be done.  All 10 people bring $10 to the market.  8 people bring 10 items to market.  The cop and soldier stand behind a counter with 10 cards stating cop and soldier services.  These cards are now items to sell.  Therefore, 100 items are for sale at the market at $1 each. 

As people shop the market, the government mandates that everyone buy one cop card and one soldier card for $1 each, every week, including the cop and soldier.  All ten people now sell ten items and buy ten items, two of which are government service cards.  Everyone buys items for $1 and keeps $1 when they sell an item.  Thus, there is no tax-discouraged trade.  Everyone came with $10 and ten items.  Everyone leaves with $10 and ten items.   

There are some real practicality concerns why all government services cannot move from taxes to the mandate; however, there should be significant movement in that direction.  Taxes having a minimum base on the tax also help to keep tax rates lower.  The purpose of this reform is to increase the level of beneficial transactions by decreasing the tax discouragement created from high tax rates.​

First, let us define some terms.  High progressive tax rates mean the government takes the next dollar earned at a rate over 50%.  As the rate of tax on the next dollar earned tops 75%, the disincentive becomes excessively problematic.  As the rate of tax increases on the next dollar earned tops 90%, the disincentive becomes excessively a near-ban. 
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If one person or a business is told that if you serve your fellow citizen, the government will take all the money earned, the person or business will have no incentive to serve their fellow citizen.  The rich are defined by anyone subject to the high progressive tax rate.  The people being served are defined by anyone wanting to do business with a person or business subject to high progressive tax rates; in which the poor are a significant subset.
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Let us examine how the rich become rich.  Why does anyone give someone else money?  The simple answer is because the person is serving them.  Serving someone is broadly defined by serving or providing a product.  Why do people give rich people more money than people give poor people?  The simple answer is because the rich offered better services at a lower cost compared to the poor.  This is defined by everyone individually making buying decisions. 
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Do poor people have the right and liberty to give their money to whomever they wish?   Yes!  The poor have the right and liberty to offer their money to their fellow poor person for a gallon of milk, a toy, rice, a house, a car, health care, or entertainment.  Normally, a poor person can not offer the same or better-quality services compared to the rich. 
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Most of the time, a rich person finds a way to do high-quality work once and have others inexpensively copy that product or services by the millions.  Singers sing to millions at once on tv.  Sports stars entertain 100,000 people in a stadium.  Bill Gates leads a team of talented computer programmers to produce great products and uses inexpensive CD’s or downloads to distribute that product or service.
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 A CEO of a billion-dollar company is paid millions because he or she is highly skilled at controlling labor hours and making quality investment decisions.  On the most part, the rich run a business or part of a business that is producing ten to a hundred times more wealth for others compared to their earnings. 
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Rush Limbaugh does the same high-quality show whether 100 or 500 stations carry the EIB network.  The EIB network has allowed countless thousands of people to capitalize on Rush’s quality show to make a great living and propel their businesses.   A person running a $1 billion a year business is responsible for several million-dollar jobs, dozens of jobs over $300,000, hundreds of jobs over $100,000, several thousands of jobs over $70,000 and tens of thousands of part-time jobs. ​

 These jobs are directly through the business they run and those that are vendors or otherwise associated.  If the CEO receives $10,000,000 per year, others receive ninety-nine times that or $990,000,000.  Anyone can apply for that $10,000,000 CEO position; however, the board of directors knows that mistakes can cost thousands of jobs and billions on lost wages over time.  Experience of success is vital to increase the odds that business will thrive.  ​

It is imperative to understand that this high tax rate is on the transaction of services from the rich to the poor.  Both sides must pay that tax.  It can be correctly stated that 100% of the money the rich pays in taxes comes from the people paying for the rich person for services.  When the poor offers to pay a rich person for services, the poor person must overcome that high tax rate in order to entice the rich to provide services to the poor.  ​

Other people might provide that service; however, the rich not offering their services means one less person offering services and many people’s first choice no longer available.  Some people might claim that this gives others the opportunity to work; that is short-sighted.  Those others can offer other services or compete for the same service.  People’s desire to be served is not even close to being satiated.   ​

This disincentive structure could also manifest in the rich scaling back or not starting that next business.  It is difficult for the economist to measure what does not happen.  The economic researcher can not research timelines that did not happen.  The economic researchers can rarely sort through the hundreds of factors that affect the economy.  ​

Above are Haley2024’s top 26 tax principals.  Below is an expanded explanation of the principles.  Each paragraph with the explanation is beside the QIP with one of the principals.  Phones will likely have the Quote in Picture boxes (QIP) above or below the explanation paragraph.  Many of the principles and explanations are interconnected, and explanations will likely flow over many principles and paragraphs.  Thus there is reliance on many of the other principals to provide further enlightenment on each individual principal.       ​​

Milton Freidman famously stated this, and it is not often totally understood or appreciated.  The level of spending must be collected in taxes, borrowed or monetized.  Taxes are addressed below.  Money borrowed removes a certain amount of capital from capitalism, by demanding the money from the capital or saving system now.  Supply and demand demonstrate government borrowing results in higher interest rates, which is a ‘tax’ on borrowing.  Monetizing the debt or deficit, taxes existing dollars in a very real; however, obscured tax. Blog: Spending as a Tax.​

The value of low rates will be described numerous times below.  A flat rate is by definition the best way to have the lowest rates.  To receive the same tax revenue, non-flat rates would have to have some people paying rates higher than the flat rate and some paying lower rates.  The minimum base amount is described below; however, is a powerful tool to keep the flat rate lower than without a base.    ​​

If the government still needs to collect $20 from the transactions, just collect it without playing games of ‘acting like’ you are getting money or a discount.  The government could collect 20% of a $100 economy or 50% from an $80 economy with half of it exempted.      Blog:  Deductions, Exemptions and Credits create a faster loss of economic activity
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If a homeowner put out a sign stating that he will pay someone $1 for 10 hours of yard work, he would not have anyone agreeing to those terms.  If he offered $1,000 for those 10 hours, he would have a long line of people wanting to make that deal.  Every person has their price where the ‘no’ turns to ‘yes.’  If that price is $200 take home with a 33% tax, the homeowner must pay $300, so the laborer receives $200.  If the agreeable terms are not overlapping the tax rate, the transaction does not happen, thus yielding no taxes.​

At some price, the homeowner will either do it himself or leave it undone.  If the homeowner sets his upper price at $295, the transaction will not happen.  There was a $95 overlap ($200 - $295) between the two parties where each of them decided the transaction would make themselves better off.  The 33% tax rate stopped the transaction.  When the tax rate goes up, the transactions are curtailed.  There is no tax collected from a rejected transaction.    Blog: The Poor are Harmed the Most by the Effects of the Laffer Curve​

Agreements on transactions between two people often come without much overlap.  Tax rates often push the two parties out of the agreeable terms.  Many people are willing to risk getting in trouble with the law as the benefits of avoiding the tax increases.  Not many will risk penalties of the law for a 5% to 10% tax; however, as rates become oppressive many will take that risk.  Under the counter transactions yield no tax.  ​

Global businesses use tax inversion to base their business in a lower business taxed country.  Online businesses often decide what state to base their business in, based on state taxes.  Military personnel regularly claim residence in a low-income tax state regardless of where they are stationed.  States advertise their job friendly taxes when lobbying for businesses to relocate in their state.​

The blog named, ‘all taxes harm the poor the most,’ goes into detail on how higher tax rates discourage business creation.  It further instructs on how supply and demand for jobs pushes wages up when there are more businesses and consequently pushes wages down when many businesses no longer make sense.  This blog also goes into higher taxes pushing economic activity in the black market or out of the taxing jurisdiction. 
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The only place for businesses to attain the money to pay taxes is selling their goods and services.  Conservatives correctly make this claim, while the Left purposely fails to address this obvious fact.  The Left often quickly changes the subject back to corporate or business greed.    
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There is a big debate about whether a sales tax or an income tax is a better idea.  People claim it is unfair that either the buyer should pay or the seller should pay the tax.  In the end, the tax is on the transaction between the buyer and seller.  The tax is built into the price or in the case of a sales tax; the buyer makes the decision based on the full price which includes the tax. ​

If one saw a product that they wanted, the price would factor into the decision to buy.  If the product was at their upper price limit, a sales tax could push it out of their buying price range.  Likewise, if one were offered an extra side job, the price would be a factor in whether they took the job.  If one’s bottom line was taking home $50 for five hours of work; a 20% tax on a $60 offer would yield the service undone, the income not made and $0 of tax collections.    ​

If the price was near one’s lower acceptable range; a 40% income tax would likely persuade them to turn down the job.  Both the buyer and seller must agree to the transaction, and higher tax rates often take one or both sides of the transaction out of the agreement.     ​
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A 50% tax rate would drop taxable GDP by about 30% compared to a 30% tax rate.  Thus tax revenue does not even approach the needed $40x, and the poor have far fewer opportunities with 30% lower business activity.  The Haley2024 Charity System is a far better way of helping the poor.   
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There are four main tax avoidance measures.  First and second, people can do without the product or service or create the product or do the service themselves.  Third and fourth, people can do transactions under the table or they can do the transaction outside the taxing authority.  As taxes rise, all four of these measures go up and taxable activity goes down.  At 100% tax rates all taxable activity stops.​

Let us start at a 10% tax rate because there is no free economic activity if our country is taken over by outside forces.  Likewise, economic activity and liberty are threatened without the rule of law.  On the Laffer Curve chart, a 10% tax rate yields a $90x economy or GDP.  At a 100% tax rate, people will not trade because 100% of both sides of the trade are taken from you and the other party.  ​​

Whether the Laffer Curve assumes a fast drop of GDP or a slow drop of GDP, the Laffer Curve always arrives at $0X of GDP.  By definition, the line needs to slope down, and by definition, it has to average $1X of GDP for every 1% increase in the tax rate or more importantly the percentage of government spending compared to the GDP.  However much the Left likes to disagree with the Laffer Curve, the facts and logic of the Laffer Curve are overwhelming.  

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In the blog, ‘Why People Don't Work all 168 Hours a Week’, it is explained that if needs are not met, people are more willing to work with higher tax rates because not eating nor having shelter is miserable.  However, if the extra hours at work is just to pay for pool cleaning at one’s third vacation home, many would rather be off work to be with the family.  When one’s needs and desires are met, unless one really enjoys their work, even low tax rates could discourage more labor hours. 
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The blog, ‘Corporate Tax Cuts’, gives an expanded account of business taxes.  Too often, people argue about who will get the money from the tax break.  A tax reduction is simply a reduction in the cost of doing business just like reducing any business expense.  Every business expense line item demands consideration of those funds including consumers demand for lower prices.  The level of each will result from billions of decisions from millions of people.  ​

Economics is complicated, and many factors could be argued; however, taxes on the most part come from economic transactions.  If Government is demanding roughly 38% of labor hours by spending 38% of GDP, it stands to reason that transactions, recognized as part of GDP, are taxed by the government at 38%. 
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Haley2024’s main thrust is trading government’s taxing and providing in a certain sector of the economy to government mandating that individuals take their responsibility in that sector.  Both mandates get the job done; however, mandating people take their responsibilities in all these sectors, yields better results.  Check out the blog on this issue and explore every reform in the top drop-down menus.   
​There Are Four Ways To Pay For Government Services

The political Left has a conflict with sin taxes.  The Left knows that the tax falls heavily on the poor and undereducated.  The Left also is very paternalistic and will restrict liberty on the Left’s perception of what is good or bad.  The Left wants to dissuade gambling, drinking, junk food, smoking, driving, among other ‘bad for you’ items, by making it more expensive.  They do that with regulations and targeted sin taxes on those activities.  ​

A good economist does not use political ideology to instruct economic thoughts.  Economics is morally, politically, and ideology neutral.  Political theorists use good, yet neutral economic ideas to create moral and just political ideology.  As an economist, one has to be aware of legitimate arguments on both sides; however, good and neutral economics overwhelming points towards lower tax rates creating higher standards of living, greater liberty, higher prosperity, and less animosity for people from every income bracket.   

If you sell your labor to an employer for $20 an hour, you should realize that the employer must put $25-$30 per hour into the payroll budget and you get the net pay of about $15 an hour.  In the negotiations to sell your labor, the employer is putting $27 an hour on the table and asking the employee if he will accept $15 in the actual paycheck.  In this example, the government will be taking $12 per hour in federal, state, unemployment, Medicare and Social Security taxes.  ​Some of this $12 is for government-mandated benefits. 
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People understand taxes they pay; however, most people do not fully appreciate how much tax is built into the price of goods and services they buy or sell.  The only place taxes can come from is economic transactions. Personal property and real-estate could be an exception.  If the seller had to pay a tax, it is in there.  If the buyer had to pay a tax, such as sales tax, it is in there. 
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In conclusion, Haley2024 relies on the understanding that if the government provides, it first has to take.  This tax page explains why taking or taxing does profound harm.  With this understanding, Haley2024 explores ways that the free enterprise system can and should take over most responsibilities currently being taxed and funded by the government.  There are many other good reasons for the changes as well as explained within Haley2024 the Movement.   ​​