One of the biggest scams in American politics is the bromide that government officials use to justify America’s paternalistic welfare state and the federal income tax: “We love the poor, the needy, and the disadvantaged.” The primary victims of the scam are the poor themselves.
Let’s look at a few examples.
The minimum-wage law is a classic political deception. It appears to help those at the bottom of the earning ladder by ensuring that employers pay them a subsistence wage. The fallacy, of course, is that the law does not require employers to hire anyone. If a person’s labor is valued in the marketplace at $5 an hour, he will be hired with or without the law. But what about a person whose labor is valued at only $3 an hour in the marketplace? What if he wants to work at $3 and learn the trade so that he can then move up the economic ladder? He can’t do it, because the law makes it illegal to hire him. He’s condemned to unemployment.
What do government officials then say to him? They tell him he can go on welfare, where they will help take care of him – and, at the same time, make him helplessly dependent on the state, destroying his sense of self-reliance and self-worth.
Occupational licensure locks the poorest people out of the labor market in many occupations. In the legal profession, for example, licensure is used to protect attorneys from competition. How many people in Harlem or Watts or Hispanic barrios are able to pay $20,000 a year to attend 7 years of state-approved college and law school, which are customarily necessary to pass the state bar exam?
Why aren’t people free to become attorneys by studying law on their own and apprenticing with an experienced attorney – the way that Abraham Lincoln did? Because government licenses are needed to ensure competent and ethical attorneys?
Burdensome and expensive economic regulations make it extremely difficult for the poor to start businesses. How many poor people can afford to hire the attorneys and consultants needed to jump through all the bureaucratic hoops that are required to open a business?
U.S. trade policies provide American businesses with privileged protection from foreign competition. They also ensure that the American poor pay an artificially higher price for food, clothing, and other basic necessities.
The federal income tax – the jugular vein of the paternalistic welfare state – is the crowning blow against the poor. The more a person earns, the more the government taxes him. Thus, the poor are unable to accumulate the capital nest egg that needs to be constantly reinvested in the business for it to survive and prosper.
If the paternalistic welfare state and the federal income tax were repealed (not reformed), the biggest beneficiaries would be the poorest people in American society. They would be able to round up relatively small amounts of capital and start new businesses overnight. They could hire friends and relatives at $2 or $3 an hour until their businesses start to prosper. They would be free to keep everything they earn and to reinvest it in their businesses. People in the inner cities and barrios of America would finally have a realistic chance of “breaking out” economically.
Wage-earners would benefit too because capital makes workers more productive, and higher productivity means higher wages. Other beneficiaries would be American consumers, who would have tens of thousands of new enterprises competing for their business.
The poor have been the main victims of the welfare-state and income-tax scam. They provide the best hope for leading America to economic liberty.