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Hornberger's Blog is a daily libertarian blog written by Jacob G. Hornberger, founder and president of FFF.
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Who Owns Your Income?

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As economic conditions in America continue to degenerate, Americans would be wise to use this period of time to reflect on the role that the federal government plays in their economic affairs, especially in comparison to the radically different way that our American ancestors viewed the matter.

President Bush and Congress have enacted an “economic-stimulus package” which entails the federal government’s sending of money to U.S. taxpayers. The money is being billed as a reduction in people’s income taxes, and the idea is that most taxpayers will go out and spend the money, thereby “stimulating” the economy by increasing consumption of goods and services.

Some people claim, however, that the solution to America’s economic woes lies in savings, not consumption. So, their solution is that the federal government should establish a wider range of savings-retirement accounts, whereby savers would receive an income-tax deduction for moneys put away in such accounts.

Do you notice a common denominator in both solutions? They both entail the federal government’s manipulating people’s economic decision-making, either with money sent to them or through an income-tax deduction.

Compare those two proposed solutions with how our American ancestors viewed the role of government in their economic activities. The idea of stimulus packages and income-tax deductions would never have occurred to them. Why? Because under their way of life, the federal government didn’t tax their income at all. They kept 100 percent of everything they earned. No IRS audits, no IRS investigations, no IRS prosecutions. No IRS or income tax at all! Therefore, there wasn’t any reason to think in terms of income-tax reductions or deductions or economic-stimulus packages.

It wasn’t as if our American ancestors hadn’t heard of income taxation. Throughout history, governmental officials have taxed people’s income. Our ancestors simply had a different understanding of the term “freedom” than modern-day Americans. Our ancestors believed that an absolutely essential part of being free is the right to keep the fruits of your labor and decide for yourself what to do with your own money — all of it.

Today’s American believes otherwise. He defines “freedom” by the extent to which the federal government is able to tax his income and manipulate his spending and savings habits through such devices as income-tax deductions and tax credits.

When Americans were free to keep everything they earned and decide for themselves what to do with their own money, people naturally disposed of their money in different ways and in different combinations. Savings, consumption, hoarding, investing, donating.

The result was the most remarkable society in history.

For one, the amount that people voluntarily saved was the key to the greatest rise in economic prosperity that mankind had ever seen. The reason for this was that the massive savings that took place provided the means by which businessmen could acquire the capital to purchase more productive tools, equipment, and machinery. That increase in productivity provided the additional income that enabled enormous rises in real wages for their employees.

Second, when people were free to accumulate wealth, there was the greatest outpouring of voluntary donations that mankind has ever seen. Keep in mind that this was a society in which people had knowingly and intentionally rejected such socialist confiscate-and-transfer programs as welfare, subsidies, Medicare, Medicaid, public (i.e., government) schooling, and Social Security. They believed that genuine freedom entailed the right to make charitable decisions with one’s own money. When Americans did have the freedom to live without socialism, the outcome was museums, opera houses, churches, associations, and all sorts of financial assistance to those in need — all voluntarily done — and not because of an income-tax deduction because, again, there was no income tax.

Today, the situation is the opposite of the way of life that our American ancestors embraced. Today, the federal government effectively owns the nation’s income. Through such devices as income-tax deductions and economic-stimulus packages, it decides how much of an allowance people will be permitted to keep each year and then manipulates them into disposing of it in ways that federal officials desire. Under the rubric that a good and caring government means a good and caring citizenry, one of the government’s primary roles is taking money from one group of people and transferring it to another group — in a word, socialism. Ironically, most modern-day Americans view this federally controlled and regulated, socialist way of life as “freedom.”

As the economic situation in America today continues to degenerate, Americans would be wise to raise their thinking to a higher level, above tax deductions and stimulus packages, asking themselves which paradigm — that which guided our ancestors or that which now holds the nation in its grip — is the moral one and the economically beneficial one.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.