There is a marketplace for labor. Now, unfortunately right now, it’s a pretty bad marketplace. For every one job opening, there are five people who are unemployed looking for a job. But there is a marketplace for labor, and that marketplace for labor has a sense. I mean there really is a sense of what people are willing to work for.

Now there's a million variables that feed into this, and that is a whole other discussion. But, there is a marketplace for labor, and what people are willing to work for is what they take home after taxes.

Now, because of that, for people who spend all of their income, in other words, for the average middle-class person, for people who are not saving more than ten or twenty percent of their paychecks, but for people who basically spend all the money that they earn, the take home pay at the end of the day is the only thing that counts.

And so, for the middle-class, what you see is that if taxes go up on the middle-class, over time, typically it takes a year or two to recalibrate, but within three years it’s always balanced. Over time, wages will go up. So at the end of the day, take home pay is identical.

If taxes go down on the middle-class, over time wages will go down. So when Reagan cut middle-class wages, towards the end of his administration, to have his famous tax cut for the middle class, actually what we saw was wages over the next two years for middle-class people actually went down. Why, because their employers knew that they were taking home more, and they were willing to work for less.

So, with working people, when taxes go up, wages go up. When taxes go down, wages go down.

With millionaires and billionaires, with people who save or invest most of the money that they make, rather than live off it, it’s the exact opposite. When taxes go up, they have less money to save, and less money to put into their Swiss bank account, and when taxes go down, they have more money to put into their Swiss bank account. Because the amount of money they live has no relationship to their living expenses.

And therefore there isn’t a real market for labor among millionaires and billionaires. Among that top three or four or five hundred thousand people in the United States. There’s not a real market for labor, there’s more of an old-boy network.

So taxes on millionaires and billionaires affect them completely differently than taxes on working people affect you or me. Completely differently.

Transcribed by Gerard Aukstiejus.