Let me give you a completely silly example of how tax impacts wealth accumulation. Suppose I gave you two choices. In your first choice, I would straight out write you a check for $10,000. Conversely, I would hand you a penny today, two pennies tomorrow, four pennies on the third day, and so on, doubling the amount every day until the end of the month. Without doing the math, which would you choose?
Being the learned person you are, undoubtedly you suspect the latter is the better choice, and right you are. In fact, presuming a 30 day month, you’d be $10,727,418 the richer soul by signing up for the installment plan and suffering the inconvenience of the daily get together.
Now, let’s suppose under this proposition you have to face an income tax of 28% that was taken out of each double. Choice one would result in $7,200. But are you ready for this? Choice two, while still wiser, would only yield $48,714. Did the government get the millions in the balance? No, they only got a measly $19,000. The balance of wealth creation simply “evaporated” in the 28% reduction of the doubling formula.
(Perhaps this unlocks that mystery of how reducing tax rates creates more tax, not less, as the velocity of growth of income increases. But that’s another lecture entirely.)