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Comment by traveler01 | Hacker News Reader

My country, Portugal, is the best example how that "tax the rich" mentality clearly didn't worked.

First of all you have to consider what in your country is considered as "rich". Here people who's wage is above average are taxed as "rich"... so yeah that creates another issue.

Also, the rich are rich because they offer very need services to the middle class. You tax the rich and they increase the prices of their products, which means you're basically increasing taxes on the lower classes instead of the rich.

The solution? An overall decrease of taxes.

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You tax the rich and they increase the prices of their products

So why didn't they do that before? If there is one thing I know about the rich it's that they won't pass up an oportunity to earn more. The reality is prices are driven by supply and demand, someone can't expect to magically increase prices just because their tax burden is higher. The market won't support that.

Yet these taxes are always represented in the final price of the product.

Rich people have power, they can go take those taxes money from whatever they want:

- Price of their products - Their employees wages - Whatever the hell they want to.

And this is happening in a socialist country. If I'd guess any better in countries like the US this would be way worse for everyone.

Taxes aren't the answer for all problems like many people like to think they are.

The point was: If they have the power to increase prices because taxes increased, then why do they not increase prices because they want to earn more? If they do have the power, they should get as much as possible! And that's the thing: Their power is limited to what is possible. That's the free market at work actually.

Increasing taxes would certainly increase prices, but not fully compensate.

The answer to your query is supply and demand; if taxes go up, then (ceteris paribus) the supply curve shifts upward. It costs more money to make the same product, so either the price must go up, the quantity sold must go down, or some combination of the two.

In the case of a redistributional policy, that upward supply shift is matched with an upward demand shift, and prices will definitely rise to at least partially reverse the effects of the taxation-based redistribution.

> So why didn't they do that before? If there is one thing I know about the rich it's that they won't pass up an oportunity to earn more.

There is some number x that is the minimum net profit after tax that entrepreneurs/investors will accept depending on how much pain in the butt the business is to take on.

This number stays the same whether taxes and wages go up or not. People just don't take on new projects unless what they can put in their pockets at the end of the day is actually worth their time and effort.

If taxes or wages go up, the prices must go up in kind for x to stay the same. If that doesn't happen, then entrepreneur/investor interest declines and eventually competition and supply decreases along with it. If that happens, then again, prices go up.

Direct taxes will be always easy to bypass, unlike indirect taxes.

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