Creating and Keeping Wealth

A good column by the great John Stossel:

Why do poor people remain poor?

Short answer, looking worldwide: they don’t have a rule of law and property rights so they can’t form businesses.

My comment: in the USA and other advanced nations, this is not a problem, and poverty is much more a result of personal dysfunction and incapacity rather than legal and economic structures. On the other hand, the regulatory burden on businesses has metastasized so much in recent decades that it discourages business formation (large businesses can afford to have a department that deals with regulations and taxation, but a startup often can’t) and thus hinders wealth creation, leaving the middle-class poorer.

Stossel concludes by worrying that we have forgotten what made us prosperous. More evidence of that comes from the news coverage of the tax deal currently being hammered out in Washington. Most of the liberals quoted use the telling phrase “tax cut for the rich” or “tax break for the rich”. This is so ridiculous it should not be tolerated in serious discourse for an instant; in fact, it is even more transparently ridiculous here than usual, because we are talking about an across-the-board extension of some tax cuts, where the liberals are insisting that higher-income taxpayers be singled out and excluded, and the failure to single them out for punishment is the “break” they are getting. Nothing could indicate more clearly the soak-the-rich attitude that wealth is undeserved and may be freely redistributed.

Underlying this attitude (which overreached so badly here that it backfired) is what I call the “liberal ratchet”. When taxes are raised, it is proportional to income or “progressively” taxing higher incomes at a higher rate, and no liberal calls this unfair. But when taxes are cut, suddenly the way they look at it is in terms of absolute dollars rather than percentage rates, and then it is obvious that the “rich” (which means those with high incomes, even though they might need to continue earning at that rate for 20 more years to actually be “rich” given their home and family expenses) benefit more which is “unfair”. (The word “unfair” is bad enough, but when I hear people talk about “social justice” or “economic justice” it is even worse.) The effect of this ratchet is to gradually increase over time the share of the national tax revenues paid by the top earners; unfortunately we have reached the tipping point where half the voters pay practically no income taxes; they combine in coalition with the very rich and with government employees (nowadays a depressingly large permanent liberal constituency) against the middle class and moderately well-off.


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12 Responses to Creating and Keeping Wealth

  1. Gorbachev says:

    The Liberal Ratchet accurately describes this process.


    Ho to reverse it? We’ll never get a flat tax passed. What we need to do is smooth out the graduated tax.

    What I find sad is that we’ve been reduced to a nation of peons. We tolerate a massively complex and brutally enforced tax regime that interferes in the daily life of its citizens. It has the power to essentially shut down our lives at a whim. Legal help is expensive and the state has limitless resources to persecute individuals.

    How did we get to this? The state shouldn’t have this power.

  2. rebelliousvanilla says:

    Gorb, it’s the natural consequence of your system of governance and voting system.

  3. FortitudineVincimus says:

    RV. Care to explain?

    I reckon you’re off the mark. It’s not a natural consequence.

    The Age of Enlightment, leading directly to modern progressives, are the reason why. Not democracy. Note the Founding Fathers were not part of this group. They were revolting against precisely these kinds of Progressives.

  4. FortitudineVincimus says:

    PolyMath, thanks for the thread.

    There is a whole field of Economics called “Development Economics” which, I find, is a ridiculously boring, time-consuming subject that basically looks like Adv. Macroeconomics.

    Would be easier if we just excepted people will remain poor if they have low average IQs and no efficient system of law and order.

  5. rebelliousvanilla says:

    FV, the founding fathers had only whites be citizens, women banned from the suffrage and only owners could vote. Hardly a democracy, if by that you understand universal suffrage. Universal suffrage is actually part of the progressive mindset of the Enlightenment.

  6. Workshy Joe says:

    There’s a name for this phenomena. Its called “Corporatism”. The bottom line is that thanks to fiat money, central banking and a heavy burden of taxation/regulation there are no free market economies anywhere on the planet.

    As George Carlin pointed out, the tables are tilted and the game is rigged in favour of the special interests attached to government.

  7. Polymath says:

    RV and FV and Gorb,

    I think we would agree that universal suffrage creates the problem of the unproductive enslaving the productive. This has me thinking that replacing the income tax with a sales tax or VAT (I prefer the former for simplicity but the differences are technical and I am open to persuasion about the VAT being superior) is necessary because only in a system with a progressive tax can this enslavement occur.

    This is like the “price discrimination” discussion earlier. A progressive tax is the equivalent of price discrimination for government, where those who can afford to must pay more. It has the analogous advantage of efficiency and disadvantage of perceived unfairness. (I say “perceived” only because there is no agreed definition of the abused word “fairness” but in a discussion with liberals I would just call it unfair and challenge them to define it if they disagreed.)

    A truly flat income tax, with the only concession to progressivity being an exemption at the low end so basic subsistence was not taxed, proportional to how many dependents one has, would be superior to a national consumption tax because of the capability to favor families with children through the dependent exemption and its compatibility with restricting the franchise — better to let some people not pay and not vote than to let everyone vote because everyone pays.

    Either way we need a constitutional amendment, to abolish a progressive income tax or abolish income tax entirely. In the meantime, we can legislatively impose a flat income tax or replace it with a consumption tax; I disagree with Gorb and think those are politically possible within a few years.

    What is NOT politically possible in America in the near future is restricting suffrage so that some law-abiding adult citizens do not get it. That is why we have to start by eliminating the progressively of the income tax. Once that is done, and almost all earners pay taxes, you can move toward restricting the franchise in a sneaky voluntary way by tying voter registration not to paying taxes (which would violate the 24th amendment) but to filing a tax return.

    If you have eliminated the Federal income tax entirely in favor of a consumption tax I can’t see a politically feasible way to restrict the franchise here, except to take it away from criminals and welfare recipients. Taking it away from non-military government workers would be desirable also but technically and politically very complicated.

  8. rebelliousvanilla says:

    Polymath, before a constitutional amendment that bans the income tax, you must be insane to support a consumption tax because you will end up paying both. This is what happened in Europe with the VAT. 🙂

  9. Polymath says:

    You misread me. I was quite careful to talk about “replacing” the income tax with a consumption tax, or “eliminating” the income tax “in favor of” a consumption tax. So we don’t disagree. Stop beating up straw men.

    Without a constitutional amendment, you can make the income tax flat. You can also eliminate the income tax in favor of a consumption tax if the legislation explicitly makes that link. But ANY change to the tax regime of this magnitude, even if it can be accomplished simply by congressional action, is better done by a constitutional amendment in order to ensure economic stability and predictability.

  10. Gorbachev says:


    Life is more complex than ruler and ruled, aggressor and victim. It’s much more complex. Life is a constant negotiation as well as a struggle. As social animals, it’s unlikely we’ll always have mastery or be slaves entirely; especially as we have scaled societies and specialized labor.

    Hence – life as negotiation.

    I’d like to know what suggestion you have to replace this system of government (election) that would provide stability, allow for as much innovation and that would prevent enough misery to abort revolutions.

    Personally, I’m all for a Republic – as envisioned by the Roman conservatives, perhaps more inclusive than they designed; certainly universal suffrage has been a problem.

    But for obvious reasons democracy is very attractive to almost everyone.

    And recall: Those that rise to the top are rarely the best ingredients. They’re usually the flotsam and jetsam and the rotting bits. Hence – the sordid history of most countries ruled by monarchies.

    Britain was an exception, because its monarch and its ruling class had only partial power. They kept the masses in check, but provided the clever quotient a means to self-better themselves and to govern themselves. They had a massive pool of smart people who were fully enfranchised to draw upon to manage their empire, all of whom had a stake in the outcome.

    Withdraw that stake, …

    And you end up with masters and slaves and society will quickly slow to a living crawl.

  11. rebelliousvanilla says:

    Polymath, no, you’re not talking about the same thing. Introducing a consumption tax should be done only after a constitutional amendment. Regular legislation abolishing the income tax isn’t the way to do it.

    Gorbachev, just because democracy is an utterly stupid form of governance, it doesn’t mean that you must have an absolute dictatorship if you don’t have democracy. And since I gave up caring about people, I hardly gave a crap about the governance system of any country. I will just move where I’m treated the best financially. Ideally, you’d have a limited suffrage constitutional monarchy with an exclusive citizenship system.

    By the way, any inclusive citizenship system, just like ’empowering’ women inevitably destroys a country. Both are done by people in decline who are on the verge of being destroyed. It’s funny how the time frames match too in between the inclusion of foreigners into the citizenship body and the destruction of the political entity. 1865 to mid 21st century is about 200 years. This is how much it took for the Roman empire to collapse too since they dropped their two Roman married parents rule for citizenship.

  12. Polymath says:

    We mostly agree since I also said it would be better done by an Amendment. But if Congress were to pass legislation today that eliminated the income tax in favor of a consumption tax, although it would not be ideal because a later Congress might still bring the income tax back, I would still sign the bill, because politically the results of eliminating the income tax would be so good that bringing it back legislatively would be extremely unlikely, instead I would expect a constitutional amendment to follow confirming the abolition of the Federal income tax (getting the Amendment first might be too difficult). Even people who would end up paying more in consumption tax than they would have with an income tax will still prefer this because the income tax is so onerous and is so hated and people would see there paychecks rise.

    Thus eliminating the income tax legislatively could if necessary serve as a precedent to eliminating it constitutionally. However, a prerequisite even to that would be making the income tax much flatter so that almost all earners pay some tax; right now there are way too many people who pay no income tax and therefore look on approvingly as it is increased on the higher earners.

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