Your friend just got a raise. He is now making $150,000 a year. Great, right? Except he lives in California. Between federal taxes, state taxes, Social Security, and Medicare, he keeps about $95,000. He works from January to mid-May just to pay taxes. The rest of the year, he works for himself.

He is now looking at apartments in Austin.

This is not a story about one person. This is the story of millions of people quietly doing the math and deciding that working harder just is not worth it when more than half goes to someone else.

The Asymmetry That Breaks Everything

Here is the deal with taxes that nobody in government wants to say out loud. When you tax corporations and individuals at very high rates, you create an asymmetry that kills risk-taking.

Say you run a small business. You are thinking about expanding – new equipment, new hires, maybe a second location. If it works, the government takes 40-50% of your gains. If it fails, you eat 100% of the losses. You gain 50 cents on every dollar of profit but lose a full dollar on every dollar of loss.

Would you take that bet? Most people would not. And they do not.

This is not theory. This is what actually happens. When a company knows it keeps only half the upside but absorbs the entire downside, it stops betting on new things. It does not expand. It does not hire. It sits on cash, plays it safe, and waits. The riskier the project, the less sense it makes to try.

Now multiply that by every business in the country.

The Brain Drain Is Real and Measurable

France raised its top income tax rate to 75% in 2012. What happened? Rich people left. Gerard Depardieu literally became a Russian citizen. Thousands of entrepreneurs and professionals moved to Belgium, Switzerland, the UK, Luxembourg. France eventually killed the tax because it raised almost no money – the people it targeted simply walked away.

Sweden in the 1970s and 80s taxed top earners at over 80%. IKEA’s founder moved to Switzerland. The country experienced a slow economic decline until it cut taxes in the 1990s and things started growing again.

This is happening right now in America, in real time. Tech founders are leaving San Francisco for Miami, Austin, and Nashville. Not for the weather – for the math. California takes 13.3% on top of federal taxes. Texas and Florida take zero. When you are making serious money, that difference is hundreds of thousands of dollars per year. Enough to fund your next startup. Enough to hire five more engineers.

Remote work made this even easier. Before 2020, you had to physically be in Silicon Valley to work at a top tech company. Now you can sit in Lisbon, pay Portugal’s flat 20% NHR tax rate, and work for a San Francisco company over Zoom. Thousands of people figured this out simultaneously. Crypto and Web3 companies went further – many incorporated in the Cayman Islands, Switzerland, or Singapore because the tax regimes in the US and EU made no sense for their business model.

The talent goes where it is treated better. Always has, always will.

When the Government Creates Its Own Problem

Here is the part that should make you angry. Governments tax heavily, which kills private sector growth and job creation. Then they point at the resulting unemployment and say, “See? The private sector cannot solve this. We need more government programs.” Which they fund with – you guessed it – more taxes.

It is a self-reinforcing cycle. Tax businesses until they stop hiring. Then hire the unemployed into government jobs. Then tax the remaining businesses even harder to pay for those government jobs. Then wonder why more businesses are closing.

The people who still have private sector jobs are now carrying the weight of both the government workers and the people who cannot find work because the tax burden crushed the companies that would have employed them.

At some point, you run out of productive people to tax. That point arrives sooner than politicians think.

The Panic When You Try to Cut Government Jobs

Now here is the second half of this problem, and it is equally misunderstood.

Anytime someone suggests reducing the number of government employees, there is immediate panic. “Millions will be unemployed! The economy will collapse! Consumer spending will crater!”

We heard this after every war when millions of soldiers were demobilized. After World War II, sixteen million American service members came home. Experts predicted catastrophic unemployment. Didn’t happen. The economy boomed. Why? Because those soldiers were being paid with tax money. When they left the military, taxpayers kept that money and spent it on civilian goods and services. That spending created the jobs that absorbed the returning soldiers.

The same logic applies to cutting unnecessary government positions. When you eliminate a bureaucratic job funded by taxes, the money does not vanish. It stays with taxpayers. They spend it. They invest it. They hire people. The demand shifts from government-directed to citizen-directed, and citizen-directed spending is almost always more efficient because people spend their own money more carefully than bureaucrats spend yours.

The “Purchasing Power” Argument Is a Scam

You hear this argument constantly: “But those government employees have purchasing power! They buy groceries, pay rent, go to restaurants. If you fire them, all that spending disappears!”

Think about what this argument actually says. By this logic, you should never fire anyone, ever. By this logic, a thief who steals your wallet and spends the money at a bar is “stimulating the economy.” The bartender is employed! The thief bought peanuts! GDP went up!

Obviously that is insane. The thief’s spending is not new economic activity. It is YOUR economic activity, redirected by force. You would have spent that money too – just on things YOU wanted instead of things the thief wanted.

Government employment funded by taxes works the same way. The bureaucrat’s paycheck is not new money. It is money taken from millions of taxpayers who would have spent it themselves. You are not creating purchasing power by employing someone with tax money. You are moving purchasing power from many people to one person.

When the only argument for keeping a government position is that the person in it spends money, you have already admitted the position itself is not needed. Time to let go.

The “Government Jobs Are Safe” Trap

There is a cultural problem too. In many countries – and increasingly in the US – people see government work as the safe, smart choice. Good benefits. Pension. Cannot get fired. Never have to hustle for clients or worry about your company going under.

And for the individual, that is true. Government jobs ARE safer. But what is good for the individual government worker is terrible for the economy overall. Because that person’s salary, benefits, and pension are a permanent tax burden on the private sector.

Every unnecessary government position is a small anchor on economic growth. One anchor, not a big deal. A hundred thousand anchors? A million? Now you have a country that moves slowly, innovates less, and watches its best talent leave for places with lighter loads.

Look at the contrast. The US government employs roughly 2.9 million civilian federal workers. When there are hiring freezes or layoff proposals, the media treats it like the apocalypse. Meanwhile, the private sector in the US employs about 130 million people, and companies hire and fire constantly without anyone writing panicked op-eds about it.

The private sector absorbs shocks because it is dynamic. People move between jobs. Companies start, grow, shrink, and die. This is healthy. When the government sector freezes a position, no one dies. The work either was not needed, or it gets done more efficiently.

The Sweet Spot Nobody Wants to Find

Let me be clear. Taxes are necessary. Courts, defense, infrastructure, law enforcement, basic safety nets – these things need funding. Nobody serious argues for zero taxes.

The argument is about the margin. There is a point where tax rates go from funding necessary services to actively destroying the economic base that generates the tax revenue in the first place. You can see this point clearly when:

People start making decisions based on taxes instead of productivity. When a founder chooses a country based on tax rates instead of market access, taxes are too high. When a doctor cuts back to four days a week because the fifth day’s income mostly goes to the government, taxes are too high. When companies spend more on tax lawyers than on R&D, taxes are too high.

Cutting taxes actually increases revenue. This has happened repeatedly – Ireland cut corporate taxes to 12.5% and became the European headquarters for Apple, Google, Meta, and dozens of other companies. The lower rate on a much larger base generated more revenue than the higher rate on a smaller base ever did.

Skilled people leave faster than you can replace them. When your best engineers, doctors, and entrepreneurs are getting on planes, you have a problem no amount of government spending can fix.

The Takeaway

Two simple truths that most economic arguments get wrong.

First: high taxes do not just move money from one pocket to another. They destroy the motivation to create wealth in the first place. When people keep only a fraction of what they earn, they earn less. They risk less. They build less. The economy shrinks not just by the amount taken but by the amount that was never created because it was not worth the effort.

Second: government jobs funded by taxes do not add purchasing power to the economy. They redirect it. When the position is necessary – a firefighter, a judge, a soldier in wartime – that redirection makes sense. When the position exists only because no one has the courage to cut it, every dollar of that salary is a dollar taken from a taxpayer who would have spent it better.

The math is not complicated. The politics are. But if you can separate the two, you will see that the path to more employment and more prosperity is usually less taxation and less unnecessary government – not more. The money does not disappear when you cut a tax or a position. It goes back to the people who earned it. And they know exactly what to do with it.