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Affluent Christian Investor | February 22, 2024

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A Statistical Overview Of American Households: Part 4, Positioning

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Financial advisor Michael Shedlock observed: with inflation as a primary tool of the government (Federal Reserve specifically),[1] those with first access to money – particularly fiat money – are simply in a much better situation to profit during the artificial boom cycle prior to the bust. Economist Jörg Hülsmann explains in further detail:

Inflation is an unjustifiable redistribution of income in favor of those who receive the new money and money titles first, and to the detriment of those who receive them last. In practice the redistribution always works out in favor of the fiat-money producers themselves (whom we misleadingly call “central banks”) and their partners in the banking sector and at the stock exchange. And of course inflation works out to the advantage of governments and their closest allies in the business world. Inflation is the vehicle through which these individuals and groups enrich themselves, unjustifiably, at the expense of the citizenry at large. If there is any truth to the socialist caricature of capitalism – an economic system that exploits the poor to the benefit of the rich – then this caricature holds true for a capitalist system strangulated by inflation. The relentless influx of paper money makes the wealthy and powerful richer and more powerful than they would be if they depended exclusively on the voluntary support of their fellow citizens. And because it shields the political and economic establishment of the country from the competition emanating from the rest of society, inflation puts a brake on the social mobility. The rich stay rich (longer) and the poor stay poor (longer) than they would in a free society.[2]

Those in power with the collectivist-statist mindset use the situation above to distract most citizens away from the actual problem – government intervention. Then, the public directs its anger towards each other and cannot distinguish between class envy and class warfare. Collectivists make progress while Americans are busy putting each other down, rather than uniting to break down the systems working against them and their wealth mobility. People must remove themselves out of this destructive engagement and try to understand liberty and economics better. The good news is that regardless of the damage inflicted by monetary fiat, the mobility of citizens to higher income brackets remains possible and likely for many.

This situation has been prevalent throughout the 20th century; wealthier Americans were impacted in the same way during the 1920s. “[T]he corporate income tax brought in slightly more revenue each year to the Treasury than the individual income tax. Since the upper income groups owned the great majority of the corporate stock, their effective tax burden was increased even more. Despite sharply reduced tax rates for upper income groups, then, the wealthy paid a larger share of the federal tax burden at the end of the decade than at the beginning [the 1920s].”[3]

A decrease in capital gains tax can have the same impact as a decrease in income tax – federal revenue increases. This is because people will move more of their capital into investments when they can keep more of their return; that is, human behavior changes and capital turned over at a greater volume. A study for the Joint Congressional Economic Committee explains:

The historical evidence suggests that capital gains tax reductions tend to increase tax revenue.   When capital gains tax rates were lowered in 1978 and again in 1981, revenue climbed steadily. Conversely, when the tax rate was increased in 1987, revenue began declining despite forecasters predictions it would increase.  For instance, capital gains tax revenue in 1985 equaled $36.4 billion after adjusting for inflation, yet $36.2 billion was collected in 1994 under a higher tax rate. In other words, tax revenue in 1994 was slightly less than it was in 1985 even though the economy was larger, the tax rate was higher, and the stock market was stronger in 1994.[4]

Decreasing taxes – particularly income and capital gains – increases federal revenue. While all tax reductions are not equal and certainly depend on which taxes are reduced, and what coinciding circumstances exist, federal revenue can increase significantly and has done so historically. After the implementation of significant tax reductions over the past century “revenue to the government shot up” and has “increased sharply.”[5]

[1] As well as the all five issues listed above: the Federal Reserve, fractional reserve lending, a fiat money system (lack of gold standard), coercive tax system, and massive government spending.

[2] Jörg Guido Hülsmann, 2008, Deflation & Liberty, (Auburn, AL: Ludwig von Mises Institute), pp. 33-34.

[3] Benjamin G. Rader, May 1971, “Federal Taxation in the 1920s: A Re-examination,” The Historian, Vol. 33, Issue 3, p. 434.

[4] Shahira ElBogdady Knight, June 1997, “The Economic Effects of Capital Gains Taxation: A Joint Economic Committee Study,” Joint Economic Committee United States Congress, (Washington, DC). p. Executive Summary.  Also referenced in John Ransom, October 18, 2012, “Taxing the Rich Guy in the White house Who is so Taxing to the Rest of Us,”, [].

[5] Burton W. Folsom, Jr., 2008, New Deal or Raw Deal?  How FDR’s Economic Legacy has Damaged America, (New York, NY: Threshold Editions), pp. 269-270.



Originally published on Townhall Finance.


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