All Commentary
Thursday, April 1, 1971

Revenue Sharing

The story is told of an American newsman discussing matters with his counterpart from Moscow. “As I understand it,” said the Ameri­can, “the basic idea of communism is to divide everything with your neighbor.”

“Not quite,” came the rejoinder. “The basic idea is to make your neighbor divide everything with you.”

“Revenue sharing” is something like that—meaning different things to different people. In pro­posing to Congress early in 1971 a $5 billion program of General Revenue Sharing, President Nixon described it as a measure to “re­store the confidence of the people in the capacities of their govern­ment. I believe the way to begin this work is by taking bold meas­ures to strengthen state and local governments—by providing them with new sources of revenue and a new sense of responsibility.”

The program presumably should correct a “fiscal mismatch”: Fed­eral tax receipts, based largely on the income tax, allegedly grow faster than the economy; at the local level the reverse is said to be true; state and local revenues, based largely on sales and property taxes, do not keep pace with economic growth, while expendi­ture requirements for education, health, welfare, and other local services tend to exceed such growth.

Rudyard Kipling described the political process of “revenue shar­ing” somewhat more poetically and profoundly:

In the Carboniferous Epoch we were promised abundance for all, By robbing selected Peter to pay for collective Paul;

But, though we had plenty of money, there was nothing our money could buy, And the Gods of the Copybook Headings said, “If you don’t work you die.”

In those lines, Kipling very nearly said it all. Our Federal gov­ernment can and does indeed cre­ate money at a pace that exceeds the capacity of individuals to sup­ply goods and services in the mar­ket place. State and local govern­ments resemble individuals in the sense that they are unable to create new money at will; but they resemble the Federal government in promising “abundance for all.” Hence, the inordinate growth of the “public sector,” which rather consistently between the Civil War and World War I took about 9 cents from each dollar of the peo­ple’s earnings and today takes 43 cents of each dollar earned. In other words, government at all levels in the United States is now drawing out of the market place 43 per cent of available goods and services, leaving plenty of money in the “private sector” but rela­tively less to buy.

An Empty Federal Treasury

A sober look at the record re­veals the sorry condition of the Federal Treasury. Instead of an alleged overflow of tax receipts to be shared, the Federal debt has shown an increase in every one of the past twenty years, $114 billion greater in 1970 than in 1950. So where is the Federal tax revenue that presumably is to be shared with debt-ridden state and local governments?

Incidentally, the total indebted­ness of all state and local govern­ments in the United States also has risen by some $114 billion over the past twenty years—but not because they have been getting relatively smaller shares of total tax receipts. On the contrary, state and local tax receipts have been increasing more rapidly than have Federal tax receipts since 1950. And taxes at all levels have been biting ever more deeply into the taxpayer’s total earnings.

In light of these sorry facts, it should be clear that the proposal for Federal revenue sharing is simply a prediction of further in­flation. The Federal government will monetize its deficit, through the centralized, fractional-reserve banking system, and give some of the newly printed money to state and local governments.

Unfortunately, the printing of additional quantities of money does not increase the supplies of goods and services that consum­ers want. It simply enables the Federal government and its rev­enue-sharing counterparts down the line to draw an increasing proportion of goods and services out of the market place, for distri­bution and use according to bu­reaucratic decision rather than individual choice.

It may be argued, of course, that it should be no great concern of the individual whether he buys groceries with food stamps or with his own earnings so long as he eats; whether his rent is paid by other taxpayers or by himself so long as he is housed; whether his medical care comes socialized or private so long as he gets the care; and so on and on. And that would be a powerful argument, if resources were inexhaustibly abundant and sharing the wealth were the only problem.

The Scarcity of Resources Relative to Human Wants

That is not the only problem, however. It isn’t even close to the real problem. Kipling came closer: “If you don’t work you die.” The perennial problem—past, present, and future—is the scarcity of re­sources relative to human wants. And the solution is through effi­cient production and use of goods and services.

Whether it is called revenue sharing or inflation or commu­nism or public-sector spending or whatever—governmental with­drawal of goods and services from the market tends to be wasteful of scarce resources. It is strictly a consuming process, whether it be a war against communism in for­eign lands or a domestic war against crime, smut, poverty, dis­ease, pollution, slum conditions, or other “social” problems. Warlike or coercive force tends to be waste­ful in any event, and especially when the coercion is used to do what otherwise would have been done voluntarily.

Besides the consumption and waste of resources characteristic of government spending, this draining of resources from the private sector of the market leaves ever less available for saving and investment in the tools of capi­talistic enterprise. Arid this loss of the tools and even the incentive to produce is what brings a tax-burdened people to the fate Kip-ling foresaw: “If you don’t work you die.”

The Decline of Morality

Meanwhile, the steady attrition of resources and incentives wears away the morality of individuals and destroys their sense of self responsibility. This breakdown tends to spread throughout the society. The private counterpart of governmental revenue sharing was described by staff reporter Richard Martin in The Wall Street Journal of February 9, 1971:

“Nobody can be sure how much money employee thefts are cost­ing companies annually, but in­surance men and security special­ists say the best guesses range upwards from $400 million a year.”

The basic idea of revenue shar­ing is to make your neighbor di­vide everything with you. But this “dirty neighbor” game always ends the same: “If you don’t work you die.”




It may be of comparatively little consequence how a man is gov­erned from without, whilst every thing depends upon how he gov­erns himself from within. The greatest slave is not he who is ruled by a despot, great though that evil be, but he who is the thrall of his own moral ignorance, selfishness, and vice. Nations who are thus enslaved at heart can not be freed by any mere changes of masters or of institutions; and so long as the fatal delusion prevails, that liberty solely depends upon and consists in government, so long will such changes, no matter at what cost they may be effected, have as little practical and lasting result as the shifting of the figures in a phantasmagoria. The solid foundations of liberty must rest upon individual character; which is also the only sure guaranty for social security and national progress. John Stuart Mill truly observes that “even despotism does not produce its worst effects so long as individuality exists under it; and whatever crushes individuality is despotism, by whatever name it is called.”

SAMUEL SMILES, From the book, Self-Help, published in 1859.

  • Paul L. Poirot was a long-time member of the staff of the Foundation for Economic Education and editor of its journal, The Freeman, from 1956 to 1987.