So we have all heard the classic arguments about how the government is unable to utilize its tax revenue anywhere near as effectively as the people who they took it from could have. But i want to point out another problem that i don't think i have ever seen addressed.

I was laying in bed last night trying to wrap my mind around just how much we pay in taxes. I was thinking they probably take 50% in obvious ways, income tax direct sales tax capital gains tax ect... thats all pretty strait forward to calculate but what about the sales tax payed by the store to its supplier? what about the sales tax payed by the stores supplier to its supplier ect... It got me to thinking, taxing each transaction in an economy should incent actors to attempt to do things themselves that they would otherwise have outsourced. This doesn't sound like such a big deal until you recall that there are basically 2 components to the creation of wealth in a society. Specialization/the division of labor and capital accumulation. Handy-capping one of only two cylinders in the economic engine could be a bigger deal than we might realize.

The point is, the incentives for firms to internalize production that they could have otherwise contracted with a specialist for may actually be responsible for destroying more prosperity than the direct negative effects of redirecting these funds to less efficient allocation.

This could be what is preventing a sort of situation where, a factory owner doesn't actually own the factory, he just owns a plot of land where hundreds of mini capitalists can come in each with their own piece of equipment that they deploy only on their own terms.

This is probably also incenting firms to grow MUCH larger than they otherwise would have in a free market. Perhaps for this reason alone we would never expect to see a company even 1/10th the size of walmart in a free market society.

anyway what do you guys think? perhaps this is common knowledge and i just somehow overlooked it.