One way to help understand this is to evaluate demand and it's impact on the overall money supply and value of society.

There is near infinite human demand. Maybe it really is infinite, and that's probably a great side discussion. Let's just say it's really large.

People want and need stuff. This is a constant.

But, there is demand backed by dollars, and demand that isn't.

Where we don't tax in a way that helps to maximize the real dollar demand, we don't value ourselves as people well enough to fund our real potential as a developing society, nation, whatever.

For our economics to work, we have got to be able to trade on the demand presented to us. What good are AD driven models delivered to a society with few liquid dollars to make the response to those ADS meaningful? What good is collecting a bunch of data on people without being able to go back and deliver something meaningful to them and get dollars in return?

Some of this can be addressed by making it cheaper to live, thus freeing dollars to fund innovation and reward those who advance us, but there are limits to that, and those limits can be artificially low when people do not have enough to present meaningful demand. I just read somewhere recently that there is basically nowhere in the US where a person can make it on less than something like $14 / hour. This varies a little, but it's fine for discussion.

When they make, say $9, they require external help to meet their basic needs and wants are largely off the table. We end up using taxes to help them get by, and they are not able to contribute back in a meaningful way. We can say that they, and their labor isn't valued well enough to present a net positive. They cost us. They cost themselves.

The people making lots of money need to get it from somewhere, right?

Our money system is debt based too. There is as much money as people can borrow realistically. When people aren't valued well enough to present plausible risk, they quite literally can't borrow and that means money isn't created that would have been otherwise.

How the taxes are structured impacts this, as does what we pay them.

In a macro sense, the number of people falling into the bucket I'll call "tepid to minimal demand", has risen from some 40 percent of us to a little under 60 percent. Wages have been flat for a considerable time, and we've also shifted away from new job creation paying "family wages" and more toward service, basic type jobs. By percentage today, far more basic wage type jobs are created than ones that pay more, in simple terms.

This has directly impacted the demand these people can present to the economy as well as their ability to take risk and or fund bigger purchases. We've innovated too, which means they can get by on less, and that's good, but there is a very strong argument for us also leaving a lot of potential on the table by keeping it all as lean as we have.

Above a certain point, say $100-200K / annual, gains are steady, and at the top, gains are significant. For most people, it's flat, or for unlucky ones a decline or very significant cut.

And here's an example:

Entertainment dollars, just to pluck one out of the air. People in the tepid demand brackets typically have what they have for entertainment. Say it's $100 a month, just for grins. That money gets spent, unless they can't for some reason like getting sick or needing to replace / repair something, because entertainment is a basic need and want like food is. Good food is a want, sufficient food is a need.

Buy a DVD, video game, new music album, see a movie, go somewhere for the weekend, buy something for a hobby, etc... all basically compete! For our growing lower tier of people, which are the majority of people, a big game release may well come at the cost of a couple of movies, or that new toy for the hobby. Everyone in that niche must advertise and differentiate to maximize their share, and overall growth comes from population growth, and the upper tiers of people.

Most notably, the real volume growth is left on the table! Those people just can't do more, so it's spent each month, month over month.

Now, the common piracy argument is that infringement is equatable to a lost sale! They say billions are "lost" as opportunity costs due to piracy. But, the reality is the money coming from these lower tiers is more or less constant, again with very tepid growth due to basic factors, like population, etc...

Because we don't value people well enough for them to fund entertainment, those billions simply do not exist! In fact, we find increasingly clever ways to differentiate entertainment and package it in ways that allow for more entertainment choices being possible to more finely divide up the dollars, and give the market some fluidity and the people in that market more choice.

Say that the need for entertainment isn't matched by dollars. The overflow is self-entertainment, infringement, trade with friends, etc...

If we could somehow prevent infringement, people would simply get less entertainment per dollar, and or overflow would mean they would do other things, if they have time for those other things. This would force people to really max out their entertainment dollar potential, but that's not much. Some growth would happen, but those billions in lost sales due to competing or infringing entertainment options just aren't there.

(BTW, this is one argument for the basic income. Move most labor related dollars into a more disposable / risk friendly spending tier for this lower income bracket. Basic needs get locked in, and their labor funds luxury or innovation opportunities allowing for some serious and meaningful economic growth.)

Take two scenarios then, given this one example. There are others and they play out in similar ways, but this is long enough already...

If we structure taxes to bias toward people who can pay taxes without their meaningful life choices being impacted, that investment can lower the tax burden on those who are impacted. Say that, results in most people in the "tepid demand" tier ending up with $200 for entertainment!

That's huge! Suddenly, there are billions, though realistically that money will compete with a lot of other things, but there really is some additional dollar potential out there for entertainment, just not double. Infringement may go down, or it may not, and I submit it won't matter. What will matter is more of their demand is backed by real dollars which translates into growth for those at the top supplying and profiting from entertainment. They now can present more of their wants and needs to the economy as demand backed by dollars.

Or, perhaps they can now get some credit, and apply that income to larger or more purchases. Growth there too. New money = new growth.

The other impact is wages. When those are higher, and growth can lead to higher wages, the same sorts of dynamics apply. People end up with more liquid dollars and or credit that they can use to make their demand meaningful.

When that demand is meaningful, or maybe actionable is a better word, market effects translate that into growth and innovation opportunities we all benefit from.

In simple, human terms, we move people from choices like buying something they want or keeping the lights on. Those choices are rough, and undesirable on a human level, which is one reason for progressive tax structures. But the other one is economic.

How we compete with other nations, the quality of our infrastructure, education of our people, innovations we can fund, military, etc... depend a lot on how we value ourselves as people and what that value means in terms of real, actionable demand as opposed to costs. Moving people from presenting as a net cost to a net positive economic contributor to demand is very highly desirable, if we also value growth and a rich market in which to profit from, and as a nation, compete globally with.

Getting back to that rich neighbor. They probably got rich doing business and meeting demand somehow and profiting by doing that.

That money comes from real demand presented by people able to present it in the economy. It's longer term foolish to ignore that reality in much the same way it is to say, continue to plant crops and harvest without also returning important nutrients to the ground to avoid it being sucked dry and unable to produce well in the future.