A lot of attention is being heaped on the difference between "Capitalism" (whether you mean free enterprise, or state-corporate protectionism) and socialism (state-sponsored theft).
Regardless of what you call it, the economic system works as follows, in any country you care to name. The wealth produced is heavily influenced by the ratio of producers to thieves (mainly, the state):
Bob the candy dude buys various basic ingredients in bulk, such as sugar, baker's chocolate, etc. Bob then transforms these raw ingredients into his famous Zonkos. He sells his Zonkos for one Fwango (unit of currency) each. The cost of ingredients per Zonko is half a Fwango. Thus, Bob's profit is a half Fwango per Zonko.
Along comes Bill the Compassion Fascist, who institutes a Zonko tax of one Fwango per Zonko. If Bob keeps his prices the same, he obviously loses a half Fwango on each Zonko he sells. If he raises the price to one and a half Fwangos, he only breaks even (and still goes out of business). If he raises the price to one hundred Fwangos, no one will buy any, and he will go out of business.
Bob raises the price to two Fwangos per Zonko. He sells considerably fewer Zonkos at the higher price, but he still sells enough to stay in business.
So what was the effect of the Zonko tax that Bill the Compassion Fascist imposed?
1) Bob raises the price of Zonkos to stay in business.
2) Fewer Zonkos are sold because of the higher price.
3) Fewer Zonkos are made to adjust for what Bob can sell.
4) Supply of Zonkos is down, and demand for Zonkos is down.
Bill the Compassion Fascist has successfully made things cost more for everyone, and made there be less overall wealth. (Wealth is stuff people ultimately want, not currency.)
Bill, being the economic jackass that politicians usually are, had expected to make 50,000 Fwangos a year from the Zonko tax, since Bob had been selling 50,000 Zonkos a year. But because of the price increase, Bob sold only 20,000 Zonkos this year, so Bill only got 20,000 Fwangos in taxes; not enough to fund his universal healthcare plan. So Bill, proud of his stupidity, triples the Zonko tax, immediately putting Bob out of business, and ending any tax revenue from the sale of Zonkos.
In summary, here is how economics works:
People make trades they want to make (duh).
If the "buyer" wants to keep his money rather than pay a high price, he does (duh).
The same is true of the trade from the "sellers" view (duh).
Adding "tax" to the deal makes it more likely there will be no deal (duh).
(This bleeding obvious phenomenon affects "essential" items less, such as food, since the buyer needs food in order to survive.)
Any questions?
I feel the neeeed to give this another perspective:
Scenario #1:
Two people make a trade. Each side wants the trade, because they want what is offered to them more than they want what they are offering for it. The trade is done, and both sides profit (since wealth is what people want, and they both ended up with something they wanted more than what they started with).
Scenario #2:
Two people try to make a trade, and a third person demands (by threat of force) a cut. Each side still wants the trade, because they want what they get from the deal more than what they give to the deal, although less so because of the third person meddling in it. The trade is done, and both traders profit, though less so than in Scenario #1, and the third person, giving nothing to anyone, gets something he wants (by force).
Scenario #3:
Same as #2, except one side decides not to make the deal because the third person's extortion made what the guy had to give be worth more to him than what he would receive. As a result, no trade is made, and no one profits at all.
Authoritarians often quote Justice Oliver Wendell Holmes: "Taxes are the price we pay for civilization." No. Taxes are the price we pay for being a bunch of f***ing morons when it comes to economics.
--Larken Rose