Money tends to migrate to where it is treated best. And when you tax it, it tends to disappear. This gives rise to the saying “whatever you tax, you get less of.” In the case of a wealth tax in England, this happened literally. Last year, the UK increased its tax rate on the highest earners from 40% to 50%. Can you guess what happened? From AdvisorOne:
Britain’s Telegraph newspaper reported that the U.K. Treasury–in the first test of the wealth tax policy introduced last year–received 509 million pounds less for January than the same month in 2011. The Treasury had projected that monthly revenues would actually increase by more than 1 billion pounds.
The projection was for significantly increased revenues to the Treasury, but revenues fell instead. Now, it is doubtful that the money actually disappeared. More likely than not, it just changed forms, from income to something else that was taxed at a different rate.
Markets all over the world operate and interact in this same way. I’ve described it before as beanbag economics—when you smush in one part of the beanbag, it just poofs out somewhere else. Relative strength is a simple and effective way to see where trends are underway.
[...] written before about beanbag economics, the essence of which is that when you smush in one part of a beanbag, it just poofs out somewhere [...]
[...] written before about beanbag economics, the essence of which is that when you smush in one part of a beanbag, it just poofs out somewhere [...]