Supply and Demand - Applies to Governments Too

Illinois just passed a law that taxes Internet retailers differently than other states do.  They also increased personal income tax and have some of the highest sales tax in the nation. Here is a video showing how they pushed an Internet coupon company to the breaking point, and they moved across the border to Wisconsin.

California is notorious for their high levels of taxes and cost.  They also passed an Internet law and Amazon.com and others canceled thousands of their contracts, likely putting a lot of small California vendors out of business.  Over a million high earners have moved out of California in the last few years to lower tax states.

We all read about jobs going overseas.  Why do people think that is happening?  When I was on my honeymoon, I met quite a few business people from around the world.  Three of them said they tried to set up US businesses, but the taxes, regulations and employment laws were too burdensome.  They said China was way easier.  China?  A communist country?  Anyone else think something is really wrong here?

There is a concept called supply and demand in economics.  The premise is simple.  When the supply of "something to sell" is low and the demand is high, prices rise.  Alternatively, when the supply of "something to sell" is abundant and the demand is low, prices drop. If you raise the price beyond people’s demand for it, they won’t buy it.
Look at the housing market for an example. The market was hot and more people wanted to and could buy homes (easy loans), so housing prices skyrocketed.  When prices got too high, nobody could get loans and more houses were built than people could buy, so prices have been on a steady decline.  Supply and demand.

The Verizon iPhone is another example.  The AT&T iPhone sells out in minutes and is often on backorder because they created demand by being first to market. Verizon over guessed their demand, ordered too many iPhones, did not sell all their supply and now give them away with corporate contracts.

The same economic forces apply to government.  It is much more obvious and rapid when it comes to state regulations.  Companies can move to a new state very easily, especially if they are near a border or are a national company with locations in multiple states.  If regulations or taxes are higher or more difficult in one state versus another, growth is pushed to the state with less expensive regulations.  Let me put it this way.  If it is less expensive to move than to stay, businesses or people will move. 

When governments talk about raising taxes to raise revenue, they never take into account supply and demand.  They assume behavior will stay the same.  What happens in reality is the people and companies that are negatively impacted will adjust behavior or move. The people and companies that stay, have to, because they are smaller or are the ones receiving the benefits, not paying for them.  The net effect is the people funding the government spending leave, cut back or push growth elsewhere; and those taking government spending stay -- and then the budgets don't balance.

Government overspending is incredibly destructive and we as citizens need to make sure that we force them to have a controlled budget and live within that budget at all times.  Otherwise they will always bring us to the brink, wasting our and our children's future opportunities.  It is simple economics.

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