The idea is to grant substantial federal tax (and regulatory?) relief to America’s most economically pained areas, like Detroit, which filed for Chapter 9 bankruptcy last year. If Paul’s suggested experiment ever sees the light of day, the country will get to see what happens when the federal government stays out of business.
But what of government assistance? Will these “economic freedom zones” also begin weaning Americans off of the government dole? That would be a truly great experiment. Would the poor in these zones be plunged deeper into poverty as a result, or would we witness local economic booms?
A 1967-8 study cited in the October 1, 1973, Congressional Record – Senate: Pages 1 – 8 suggests that even the poorest areas of the country which receive substantial government assistance are actually being taxed much more than they are receiving back in aid:
A very different sort of study was conducted for the Institute for Policy Studies analyzing the income flows in the Shaw-Cardozo area of Washington, D.C. Three sets of statistics were developed the most reliable of which, according to the study, indicated that in 1968 $5 million more in taxes were paid out than were received in all visible government services.
$5 million dollars. In 1968, the impoverished area of Shaw/Cardozo in Washington DC was looted for $5 million more than they received in government aid. Rothbard cites the same study in For a New Liberty, page 170, and the numbers weren’t much better for the previous year:
A fascinating gauge of whether or to what extent government is helping or hurting the poor in the “welfare state” is provided by an unpublished study by the Institute for Policy Studies of Washington, D.C. An inquiry was made on the estimated flow of government money (federal and district) into the low-income Negro ghetto of Shaw-Cardozo in Washington, D.C., as compared to the outflow that the area pays in taxes to the government. In fiscal 1967, the Shaw-Cardozo area had a population of 84,000 (of whom 79,000 were black) with a median family income of $5,600 per year. Total earned personal income for the residents of the area for that year amounted to $126.5 million. The value of total government benefits flowing into the district (ranging from welfare payments to the estimated expenditure on public schools) during fiscal 1967 was estimated at $45.7 million. A generous subsidy, amounting to almost 40% of total Shaw-Cardozo income? Perhaps, but against this we have to offset the total outflow of taxes from Shaw-Cardozo, best estimated at $50.0 million—a net outflow from this low- income ghetto of $4.3 million! Can it still be maintained that abolition of the entire massive, unproductive welfare state structure would hurt the poor?
It would appear that there is something to Thomas Sowell’s suggestion that, “The welfare state is the oldest con game in the world. First you take people’s money away quietly and then you give some of it back to them flamboyantly.”
The extent to which these “Economic Freedom Zones” ever get implemented remains to be seen, but it is clear that DC’s proposed solutions thus far haven’t worked.

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