Government Does Not Create Wealth; It Redistributes Tax Income

by VINCENT GIOIA September 9, 2010
With all the government spending these days it’s easy to forget that the government does not create wealth; whatever the government gives to some it takes from others. The tax system is designed to be the vehicle for this transfer of wealth. Barack Obama said, famously, that he wants to spread the wealth but this was being done long before Obama had aspirations to become president. Once elected, Obama merely expedited the transfer of wealth and wants to bring it to new levels of “success.”
Today with as many people not paying taxes as do, it makes perfect political sense for a politician and a political party intending on remaining in power to practice what George Bernard Shaw observed: "The government who robs Peter to pay Paul can always depend on the support of Paul."
John Stossel wrote an article a while ago in which he cited some profound statistics. I don’t know if these statistics are correct but I trust Stossel to not put anything in writing that is incorrect.
The Urban-Brookings Tax Policy Center reported that close to half of all households will pay no income tax this year and some will pay less than zero — meaning, they'll get money from those who do pay taxes.
The Tax Policy Center also reported that in 2009 the average income-tax rate for the bottom 40 percent of earners will be negative and that their cash subsidy under the splendidly entitled “Earned Income Tax Credit” will equal 10 percent of the total amount the income tax paid to the government under both this tax program and President Obama's "Making Work Pay" program.
The system already in place before Obama was geared to make sure the “rich pay their fair share.” The top 20 percent of earners makes about 53 percent of the income in America but pays 91 percent of the income tax. The top 1 percent pays 36 percent. The IRS says the bottom half of earners pays less than 3 percent and don’t forget this does not include the many who don’t pay any taxes but receive a “tax credit,” that is, a welfare check paid out of money the 53 percent of us pays to the government.
According to Stossel, “Frederic Bastiat, the great 19th-century French economist, defined the state as ‘that great fiction by which everyone tries to live at the expense of everyone else.’” Unfortunately one political party here has elevated this concept to a point likely not envisioned by Bastiat where one half of the population lives off the other half.
The founders who created this country wrote a constitution intending to limit the power of the federal government. The primary task they expected the government to fulfill was to provide security and protect the people and to do this properly people would support the government by paying taxes (but not income taxes, that was thought up much later by the same thinking that enlarged the role of the federal government). However today we live under a system where virtually nothing is beyond the reach of the national government so more and more of the income of working Americans and businesses must be confiscated to support the expanded range of government activities. There is no limit to what the federal government can do at our expense; if there is a limit, it’s only whatever the political mind can envision. The result is, as Stossel points out, a distribution “of special privileges, taking money from some and giving it to others. America is now about evenly split between those who pay income taxes and those who consume them.”
As I said, the government does not create wealth; it merely redistributes the earnings of those who pay taxes. Contributing Editor Vincent Gioia is a retired patent attorney living in Palm Desert, California. His blogs at and he may be contacted at

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