The idea of the redistribution of wealth is an appealing one, especially for people who don’t consider themselves wealthy. Many people believe that economic equality is the only way to truly make people equal. After all, one of history’s most famous urban legends — Robin Hood — took from the rich and gave to the poor.
However, what many people don’t realize is that Robin Hood was actually stealing from the government — an oppressive aristocracy which was taxing its citizens unfairly — and giving back money which was originally the poor’s in the first place.
But does wealth redistribution actually help society? Is it more beneficial to the rich than it is to the poor? Is it a cheap stunt used by politicians to get votes?
In this article, we’ll examine the concept of wealth redistribution, its effect on the United States, and more importantly — how it effects your average taxpayer.
Free Is Really, Really Expensive
These days the only way a politician can get elected is by promising more free stuff than the politician he is running against. But the public doesn’t seem to realize that free stuff isn’t really free.
It would be political suicide for a politician to even suggest that we should cut back in any area of the budget. If you suggest cutting the military budget, the right wing will tell you you’re un-American and there are terrorists under your bed. If you suggest cutting social security, the AARP will mobilize their tsunami of voters against you. And if you suggest cutting Medicare and Medicaid, the entire population will rise up against you screaming, “But health care is the single most important issue of our day!”
The problem is that every issue is the single most important issue of our day. That is why tough choices that need to be made to shore up our economy won’t be made.
To this you must add the fact that the United States of America has essentially become a socialist society living under the delusion that we are still free market capitalists. We forget that WE ARE the government.
The government isn’t some benevolent, separate entity with deep pockets. Whenever a problem arises, the majority always says the same thing — “The government should do something about it.”
They all seem to think that our government should be everybody’s safety net. When major hedge funds overleverage themselves, they think the government should bail them out, and when homeowners over-mortgage their homes, they think the government should save them from foreclosure.
We don’t seem to make the connection that whenever the government “does something about it,” it does so at half the efficiency and twice the cost of the private sector. Then it hands the public the bill through either direct taxation or through inflation taxation (aka the “hidden tax“).
That means, in the end, we all pay.
One of the biggest problems is that we hire (i.e. vote for) the wrong people to decide how our currency is to be spent. I would venture to say 99% of the officials we send to Washington D.C. who are charged with the job of redistributing our wealth, and thus the task of running the economy, know nothing about economics.
And if they do know, they don’t really care because their term is only two, or four, or six years.
President George W. Bush, as captain of our economic ship, decided to correct our course with tax cuts, and then scuttle us on the rocks of reckless spending due mostly to Medicare prescription drug benefits and the war in Iraq. But unlike the captain of the Titanic, he’s not going down with the ship — we are.
The Dangers of Big Government
The biggest problem facing America isn’t the housing crisis, the war on terror, or public education. The biggest problem facing America is really big government. It’s a huge monster that needs continuous feeding.
Before President Roosevelt’s New Deal, the federal government was just 3% of the economy. Today, it’s over 26%. And when you add in state and local governments, plus the cost of regulatory compliance, plus the cost of all the business that provides goods and services that support all the government agencies, it’s more than 50% of the U.S. economy.
The biggest threat the American people have to face in any economic crisis is government coming to the rescue. And with the government so big, and so pervasive, and with everyone expecting government to provide a safety net for every possible contingency — it will continue to grow.
That means it will require more money. Where does it get that money? From you and me. And when it needs more than we are able to give, it creates it out of thin air.
As the famous economist Milton Friedman puts it:
Government has three primary functions. It should provide for military defense of the nation. It should enforce contracts between individuals. It should protect citizens against crimes against themselves or their property. When government — in pursuit of good intentions — tries to rearrange the economy, legislate morality, or help special interests, the costs come in inefficiency, lack of innovation, and loss of freedom. Government should be a referee, not an active player.
People don’t realize what government bailouts of private financial institutions really cost. The savings and loan crisis of the late 1980s cost taxpayers $150 billion. In 1989 the U.S. population was less than 250 million. That means everyone in the U.S. paid more than $600 each ($1,000 in 2007 dollars), either through taxes or inflation, to fix problems stemming from those financial institutions’ stupidity. But that was nothing compared to what looms on our horizon.
The reason the potential for systemic financial failure of our economy exists at all is because the public allowed themselves to be hoodwinked by big government and big banks. It was a process that took a few hundred years to unfold.
- The first con job was that we allowed ourselves to be taken in by fractional reserve banking policies, which allows banks to create money out of thin air.
- The second con job was allowing fractional reserve commercial banks to be pyramided on top of fractional reserve central banks (like the Federal Reserve).
- The third mistake was not rising up against our government and the central banks in 1971 when the Federal Reserve, in collusion with President Nixon, made the U.S. dollar into a purely fiat currency.
- The fourth, and probably biggest, mistake is allowing government to continue to create money and spend it unchecked as it continues to grow, and grow, and grow.
The result is simple: inflation, inflation, and more inflation.
What Is Socialism?
Socialism refers to a broad set of economic theories of social organization advocating social or collective ownership and administration of the means of production and distribution of goods, and the creation of an egalitarian society where labor is the main source of wealth.
In essence, in a socialist society, everything is owned by one organization, and all money flows into and out of that organization.
In this sense, Socialism is another word for one great, big, gigantic monopoly — where the government is the body that controls this monopoly.
In theory, this is a great system because it promotes “fairness” in the sense that it eliminates poverty. However it also eliminates incentives to succeed, to innovate, and to work hard. It also creates enormous inefficiency, stagnant to non-existent economic growth, and the creation of an elite ruling class that is rife with corruption.
In economics, a monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. Monopolies are thus characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods.
When the government nationalizes an industry, it essentially gains a legal monopoly over that industry and eliminates all competition from the marketplace. The reason monopolies are illegal in the private sector is because when one entity has control over an industry, there are no price controls. Competition drives down the cost of goods and services. Without competition, there is nothing to keep the controlling organization from price gouging its customers.
This is especially dangerous when it comes to necessities, like food, water, medicine, etc.
When you allow government to grow and take over industry, you essentially allow the government to control the price of the goods and services in that industry.
Many people believe this is a good thing because government can keep the price of those goods and services low. However, price limits have historically backfired on all governments who have tried them, because the free market always wins out — no matter what you do to try and stop it.
In 301, Roman emperor Diocletian issued an order called the Edict on Prices, which imposed the death penalty on anyone selling goods for more than the government-mandated price. Merchants could no longer sell their wares at a profit, so they closed up shop or moved to lands which allowed them to sell their goods at a free-market price.
When government mandates prices that are artificially low, it causes a transfer of wealth out of the country. To see evidence of this, simply look at the communist nation of Cuba.
Though Cuba is communist, the difference between socialism and communism is that a socialist society is only about economic monopolies, whereas a communist society is about economic and political monopolies.
Since the communist revolution in Cuba in 1959, the country has seen a progressive economic downturn. Without the influx of money from the Soviet Union to bolster its economic, it has seen class equality achieved — everyone in Cuba (except for the ruling class) is poor.
Here is what Socialism has brought to Cuba:
- Production is run by the government and the labor force is run by the state.
- Capital investment is restricted and requires approval by the government. This ensures a lack of private sector jobs and economic competition.
- The Cuban government sets most prices and rations goods to citizens.
- Any firm wishing to hire a Cuban must pay the Cuban government, which in turn will pay the company’s employee in Cuban pesos.
- Preferential treatment exists for the ruling class of the Communist party, which get luxuries average citizens do not, such as access to transportation, work, housing, university education and better health care.
- Starting in the late 1980s the Soviet subsidies for Cuba’s state-run economy started to dry up. Before the collapse of the Soviet Union, Cuba depended on Moscow for sheltered markets for its exports and substantial aid. The Soviets had been paying above-market prices for Cuban sugar, while providing Cuba with petroleum at below-market prices. The removal of these subsidies sent the Cuban economy into a rapid depression known in Cuba as the Special Period.
- Since 1959 Cuba has experienced slow growth in its Gross Domestic Product relative to other countries that were in a similar situation in the 1950s, stagnant trade, and amassed a significant debt amounting to some $16.62 billion in convertible currency and $15 to $20 billion dollars with Russia
- Cuban citizens themselves have experienced a decrease in their caloric intake and a shortage of housing since 1959.
- For some time now, Cuba has been experiencing a housing shortage because of the state’s failure to keep pace with increasing demand.
- Food is rationed to Cuban citizens and state salaries are failing to meet personal needs of its citizens under the state rationing system chronically plagued with shortages.
- As the variety and amount of rationed goods available declined, Cubans increasingly turned to the black market to obtain basic food, clothing, household, and health amenities.
- There have been mass exoduses of Cuban citizens to the United States in an effort to achieve economic prosperity, causing a decline in productivity, innovation, and wealth creation in Cuba — not to mention a shrinking work-force, which contributes to the government’s failure to meet production demand.
And this is just the most recent example of how a government-run monopoly can wreck the economy. Keep in mind, this all started when Castro had his government seize the wealth and property of his country’s rich and wealthy, and took over the utilities and financial institutions.
Why Wealth Redistribution Is Good for the Rich and Bad for the Poor
Although socialism has long claimed to be for the poor, it has probably done more damage, on net balance, to the poor than to the rich. After all, the rich have enough money to leave the country if they think the socialists are going to do them any serious harm.
Some of our own rich here in the United States have already had their money leave the country, to be sheltered from the higher taxes that limousine liberals say we should all pay (to learn more about this, read our article on how the rich hide their wealth). Meanwhile, the mainstream media give them kudos for their selfless advocacy of higher taxes on higher income people, forgetting that these are not taxes on wealth.
Most of the people in the upper income brackets are not rich and do not have wealth sheltered offshore. They are typically working people who have finally reached their peak earning years after many years of far more modest incomes — and now see much of what they have worked for siphoned off by politicians, to the accompaniment of lofty rhetoric.
The rich have learned to adapt socialist policies to their own benefit. For example, a while back the city of Riviera Beach, Florida, was planning to demolish a working class neighborhood under its power of eminent domain, in order to prepare the way for a marina for yachts, luxury condominiums and an upscale shopping district.
What will the city of Riviera Beach get out of all this? More taxes from higher-income people, enabling local politicians to spend more money on programs to attract votes. Meanwhile the rich get rid of lower-income folks without having to pay them the value of their homes and businesses that will be demolished. As in so many other cases, eminent domain is socialism for the rich.
Theoretically, those whose homes and businesses are demolished will get the “just compensation” to which the Constitution says they are entitled.
In reality, just announcing plans to demolish the homes in an area will immediately demolish part of their market value. Even if homeowners are compensated for whatever value remains when their homes are actually demolished — which can be years later — they have still been had.
For businesses, compensating them for the value of their physical assets — which may or may not include ownership of the place where their businesses are located — does nothing to compensate them for the often much larger value of the clientele they have built up over the years but who are now scattered to the winds by neighborhood demolition.
This game doesn’t work the same way in rich neighborhoods. Not only can the rich hire big-bucks lawyers to fight city hall, why would city hall want to get rid of upscale taxpayers, who are often also big donors to political campaigns?
Remember — in socialism, there is no equality. There is the ruling class, and everyone else. As evidenced in other socialist countries, the ruling class (those who control the monopolies) get special perks and privileges others do not.
In a socialist society, the rich, who can afford to lobby politicians, are usually awarded favorable treatment due to their ability to help finance political campaigns. In exchange, they are not only given preferential treatment, but in most cases, more wealth is transferred to them in the form of political power. This leaves the average working man out in the cold, as he now has no way to achieve success thanks to the anti-competition stance of a socialist government as opposed to the open opportunities of a free market.
How Will Obama’s Tax Policies Redistribute Wealth?
Barack Obama has stated numerous times that he is looking to create “fairness” in America’s economy, which is a socialist ideal. He has even stated that he wants to “share the wealth” by taking money from people who earn it in the form of higher taxes, and giving it to people who don’t. (The “rich guy and the waitress” metaphor he likes to repeat.)
You can see him talk about his socialist-leaning beliefs in these videos:
This makes it obvious that Barack Obama does not see taxation as a means to pay for government works, rather he sees taxes as a socialist system of wealth redistribution.
If you apply Obama’s “fairness” policies to schools, you’ll get a better idea of how this works:
Let’s say your child is studying for an important test. He comes home from school and studies hard and diligently for hours. He learns the material, and when he takes his test, he gets an A+ thanks to his hard work.
But then the teacher goes to him and says “You did great, but Billy and Jack didn’t do so well. They both got D’s on the test. In order to make things fair, we’re going to take away two of your grade points and give it to them, so now you all have C’s.”
Your child cries to you about how he worked so hard to earn an A, while Billy and Jack played video games. You complain to the teacher about it not being “fair,” because your child worked for his grade while the other two didn’t. Your complaints fall on deaf ears, since to the school, their definition of fairness means everyone gets the same grade, while your definition of fairness is that you get what you work for.
Now, your child gives up studying and plays video games all day because he can’t see the point in studying hard when everyone gets the same grade due to the school redistributing them.
If it were your child this happened to, chances are you’d raise holy hell to make sure his hard work got rewarded. But when it comes to other people’s money, most wouldn’t fight for the “fairness” of others keeping more of what they worked hard to earn.
Remember — in America, we aren’t pegged into an income class. If a waitress making $4/hour plus tips wanted to, she could start her own restaurant and make more money. Or she could invest in stocks and get money from the market. Or she could learn a skill and get a better job. Just because that waitress works at a minimum wage job, does not mean she does not have opportunity to advance economically.
Barack Obama’s mantra of being “neighborly” is also flawed. Being neighborly implies you have a choice to be kind to someone in your community. If you like your waitress, you are free to choose to give her more of your hard earned money.
But when the government takes your money, you have no say in who that money is given to. While you work hard every day trying to provide for your family, that money you pay in taxes might be given to an alcoholic on welfare who watches TV all day and neglects his kids. You just never know, because you are not in charge of your money at that point.
The most telling effects that Barack Obama’s “share the wealth” philosophy will have on the economy, however, are the effects on states that already practice his tax the rich, give to the poor policies.
Barack Obama’s Wealth Redistribution In Practice
Despite the federal government’s growing economic dominance, individual states still exercise substantial freedom in pursuing their own economic fortune — or misfortune. As a result, the states provide a laboratory for testing various economic policies.
In this election year, the experience of the states gives us some ability to look at the economic policies of the two presidential candidates in action. If a program is not playing in Peoria, it probably won’t work elsewhere. Americans have voted with their feet by moving to states with greater opportunities, but federal adoption of failed state programs would take away our ability to walk away from bad government.
Growth in jobs, income and population are proof that a state is prospering. But figuring out why one state does well while another struggles requires in-depth analysis. In an effort to explain differences in performance, think tanks have generated state-based economic freedom indices modeled on the World Economic Freedom Index published by The Wall Street Journal and the Heritage Foundation.
The Competitiveness Index created by the American Legislative Exchange Council (ALEC) identifies “16 policy variables that have a proven impact on the migration of capital — both investment capital and human capital — into and out of states.” Its analysis shows that “generally speaking, states that spend less, especially on income transfer programs, and states that tax less, particularly on productive activities such as working or investing, experience higher growth rates than states that tax and spend more.”
Ranking states by domestic migration, per-capita income growth and employment growth, ALEC found that from 1996 through 2006, Texas, Florida and Arizona were the three most successful states. Illinois, Ohio and Michigan were the three least successful.
The rewards for success were huge. Texas gained 1.7 million net new jobs, Florida gained 1.4 million and Arizona gained 600,000. While the U.S. average job growth percentage was 9.9%, Texas, Florida and Arizona had job growth of 18.5%, 21.4% and 28.9%, respectively.
Remarkably, a third of all the jobs in the U.S. in the last 10 years were created in these three states. While the population of the three highest-performing states grew twice as fast as the national average, per-capita real income still grew by $6,563 or 21.4% in Texas, Florida and Arizona. That’s a $26,252 increase for a typical family of four.
By comparison, Illinois gained only 122,000 jobs, Ohio lost 62,900 and Michigan lost 318,000. Population growth in Michigan, Ohio and Illinois was only 4.2%, a third the national average, and real income per capita rose by only $3,466, just 58% of the national average. Workers in the three least successful states had to contend with a quarter-million fewer jobs rather than taking their pick of the 3.7 million new jobs that were available in the three fastest-growing states.
In Michigan, the average family of four had to make ends meet without an extra $8,672 had their state matched the real income growth of the three most successful states. Families in Michigan, Ohio and Illinois struggled not because they didn’t work hard enough, long enough or smart enough. They struggled because too many of their elected leaders represented special interests rather than their interests.
What explains this relative performance over the last 10 years? The simple answer is that governance, taxes and regulatory policy matter. The playing field among the states was not flat. Business conditions were better in the successful states than in the lagging ones. Capital and labor gravitated to where the burdens were smaller and the opportunities greater.
It costs state taxpayers far less to succeed than to fail. In the three most successful states, state spending averaged $5,519 per capita. In the three least successful states, state spending averaged $6,484 per capita. Per capita taxes were $7,063 versus $8,342.
There also appears to be a clear difference between union interests and the worker interests. Texas, Florida and Arizona are right-to-work states, while Michigan, Ohio and Illinois are not. Michigan, Ohio and Illinois impose significantly higher minimum wages than Texas, Florida and Arizona. Yet with all the proclaimed benefits of unionism and higher minimum wages, Texas, Florida and Arizona workers saw their real income grow more than twice as fast as workers in Michigan, Ohio and Illinois.
Incredibly, the business climate in Michigan is now so unfavorable that it has overwhelmed the considerable comparative advantage in auto production that Michigan spent a century building up. No one should let Michigan politicians blame their problems solely on the decline of the U.S. auto industry. Yes, Michigan lost 83,000 auto manufacturing jobs during the past decade and a half, but more than 91,000 new auto manufacturing jobs sprung up in Alabama, Tennessee, Kentucky, Georgia, North Carolina, South Carolina, Virginia and Texas.
So what do the state laboratories tell us about the potential success of the economic programs presented by Barack Obama and John McCain?
John McCain will lower taxes. Barack Obama will raise them, especially on small businesses. To understand why, you need to know something about the “infamous” top 1% of income tax filers: In order to avoid high corporate tax rates and the double taxation of dividends, small business owners have increasingly filed as individuals rather than corporations. When Democrats talk about soaking the rich, it isn’t the Rockefellers they’re talking about; it’s the companies where most Americans work. Three out of four individual income tax filers in the top 1% are, in fact, small businesses.
In the name of taxing the rich, Barack Obama would raise the marginal tax rates to over 50% on millions of small businesses that provide 75% of all new jobs in America. Investors and corporations will also pay higher taxes under the Obama program, but, as the Michigan-Ohio-Illinois experience painfully demonstrates, workers ultimately pay for higher taxes in lower wages and fewer jobs.
Barack Obama would spend all the savings from walking out of Iraq to expand the government. John McCain would reserve all the savings from our success in Iraq to shrink the deficit, as part of a credible and internally consistent program to balance the budget by the end of his first term. Barack Obama’s program offers no hope, or even a promise, of ever achieving a balanced budget.
Barack Obama would stimulate the economy by increasing federal spending. John McCain would stimulate the economy by cutting the corporate tax rate. Barack Obama would expand unionism by denying workers the right to a secret ballot on the decision to form a union, and would dramatically increase the minimum wage. Barack Obama would also expand the role of government in the economy, and stop reforms in areas like tort abuse.
The states have already tested the McCain and Obama programs, and the results are clear. We now face a national choice to determine if everything that has failed the families of Michigan, Ohio and Illinois will be imposed on a grander scale across the nation. In an appropriate twist of fate, Michigan and Ohio, the two states that have suffered the most from the policies that Barack Obama proposes, have it within their power not only to reverse their own misfortunes but to spare the nation from a similar fate.
The majority of Americans are dependent on the federal government for their health care, education, income, or retirement — at the same time the number of taxpayers paying for these benefits is rapidly shrinking. How can any free nation survive when a majority of its citizens, now dependent on government services, no longer have the incentive to restrain the growth of government? As we all know, over the last 50 years, American attitudes have shifted from cherishing self-sufficiency and personal responsibility to craving cradle-to-grave security 'guaranteed' by government. The result is that increasing numbers of Americans are dependent on government for their income, careers, health care, education, and other essentials. Government benefits — once concentrated on 'the needy' — now extend into middle- and upper-middle-class households, even as more and more Americans see their income tax liabilities decrease. Today, the majority of Americans can vote themselves more generous government benefits at little or no cost to themselves. As a result, most have little fiscal incentive to restrain the continued growth of Big Government and the entitlements it dangles before them. - Jim DeMint, The Coming Crisis, May 8, 2001
A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. - Justice Litle, Is America’s Economic Recovery on the Whole Based on a Rotten Sham?, Daily Markets, April 20, 2010
If one understands that socialism is not a share-the-wealth programme, but is in reality a method to consolidate and control the wealth, then the seeming paradox of super-rich men promoting socialism becomes no paradox at all. Instead, it becomes logical, even the perfect tool of power-seeking megalomaniacs. Communism or, more accurately, socialism is not a movement of the downtrodden masses, but of the economic elite. - Gary Allen, None Dare Call It Conspiracy, Concord Press, 1971
The movement toward public sector unionism and collective bargaining began in the late 1950's. Its proponents ought to be forgiven for their failure to foresee just how harmful it would be to our nation's governmental institutions. They had no empirical evidence on which to base their ideas. Now, almost forty years later, the politicians who insist on perpetuating the compulsory public sector collective bargaining laws that have given public sector unions disproportionate power in determining the size, cost and quality of public services are less easily forgiven. The record is clear. It is an unmitigated disaster. But, politicians are, after all, politicians and the laws that gave public sector unions so much influence on government decisions have also made them into very powerful political forces throughout the country. Fortunately, there is a new mood sweeping the country and the public is not content to allow politicians to maintain business as usual with special interests. Already, in small ways all across the country, public sector union power is being successfully challenged. But, Rome was neither built nor burnt in a day. There is a long way to go to restore the proper balance between the public interest and the interests of public employees. - David Denholm, Beyond Public Sector Unionism: A Better Way, Public Service Research Foundation, October 1994
The problem we face now is that our “Capitalism” is corrupt and only serves the Elite. Those with the political connections get bailed out of their failure and spread the cost among those who were prudent or worse, those that succeeded. In reality we have a two tiered system in which most of America gets the failure of Capitalism and the Elite get the Socialism of being bailed out on our backs. In essence we privatize profits and socialize loses. This creates a moral hazard where those that are alleviated of the risk of failure, take more and more risk, in search of greater profits. This ultimately leads to a crisis which, is where we are today. - Silver Shield, The Two Coming American Revolutions, Dont-Tread-On.me, March 25, 2011
Time appears to be running out, with dire changes having already begun. Who knows, maybe there is only a year or two remaining of relative freedom of movement before the controllers reveal their deep affinity with the dark side by setting up what seems to be their planned world dictatorship, world government, and world currency. They have learned how to manufacture crises and disasters, such as 9/11, as a means of seizing more power. The signs that they are springing the trap will be the increased bureaucratization of all aspects of life, wartime measures like rationing and transportation checkpoints, centralization of financial institutions, control of populations through un- and under-employment, elimination of freedom of speech on the internet, and continued growth of computerized systems containing personal identifying information. As has happened before, the majority of people will likely be so sick of the rising tide of chaos, which the controllers have helped engineer, that they will willingly trade their autonomy for the shackles of totalitarian order. - Richard C. Cook, The Time of Testing Is Here, richardccook.com, May 24, 2010
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Public-sector unions have had a good few decades. Has their luck run out?