Skip to comments.Defending Tax Cuts for the ‘Rich’ (Republicans should revisit the arguments of the 1920s)
Posted on 05/23/2012 6:51:45 AM PDT by SeekAndFind
Democrats have been having a field day with the cry of tax cuts for the rich for which Republicans seem to have no reply. This is especially surprising, because Democrats made the same arguments back in the 1920s, and the Republicans then not only had a reply, but one that eventually carried the day, when the top tax rate was brought down from 73 percent to 24 percent.
What was the difference then?
The biggest difference is that Secretary of the Treasury Andrew Mellon took the trouble to articulate the case for lower tax rates, in articles that appeared in popular publications, using plain language that ordinary people could understand. Seldom do Republican leaders today even attempt to do any such thing.
In 1924, the ideas from these articles were collected in a book which Mellon titled Taxation: The Peoples Business. That book has recently been reprinted by the University of Minnesota Law Library. Todays Republicans would do well to get a copy of Mellons book, which shows how demagoguery about tax cuts for the rich can be exposed for the nonsense that it is.
People in the media could also benefit by seeing how the tax cuts for the rich demagoguery collapses like a house of cards when you subject it to logic and evidence.
Those who argue that the rich should pay a higher tax rate, and that the revenue this would bring in could be used to reduce the deficit, assume that higher tax rates equal higher tax revenues. But they do not.
Secretary Mellon pointed out that previously the government received substantially the same revenue from high incomes with a 13 percent surtax as it received with a 65 percent surtax. Higher tax rates do not mean higher tax revenues.
High tax rates on high incomes, Mellon said, lead many of those who earn such incomes to withdraw their money from productive business and invest it in tax-exempt securities or otherwise find ways to avoid receiving income in taxable forms.
That is even easier to do today than in Andrew Mellons time. The very same liberals who complain that Mitt Romney among thousands of others puts his money in the Cayman Islands nevertheless act as if raising the tax rates automatically raises tax revenues. It can instead drive money out of the country and drive jobs out of the country with it.
The United States has long been a place where foreigners from around the world have sent their money to be invested, more than offsetting the money that Americans invested abroad. But, in recent years, the net flow of investment has been out of America to places overseas that dont tax as much.
Mellon cited statistics that showed the opposite of what the high-tax advocates claimed. Although incomes in general were rising from 1916 to 1921, the taxable income of people earning $300,000 and up dropped by about four-fifths.
That didnt mean that the rich were becoming poor. It meant that they had arranged to receive their incomes in forms that were not taxable. Mellon asked where the money of these high-income earners went. He answered: There is no doubt of the fact that much of it went into tax-exempt securities. In todays global economy, much of it can also easily be sent overseas much more easily than workers can go overseas to get the jobs this money creates in other countries.
After Mellon finally succeeded in getting Congress to lower the top tax rate from 73 percent to 24 percent, the government actually received more tax revenues at the lower rate than it had at the higher rate. Moreover, it received a higher proportion of all income taxes from the top income earners than before.
Something similar happened in later years, after tax rates were cut under presidents Kennedy, Reagan, and G. W. Bush. The record is clear. Barack Obama admitted during the 2008 election campaign that he understood that raising tax rates does not necessarily mean raising tax revenues.
Why, then, is he pushing so hard for higher tax rates on the rich this election year? Because class-warfare politics can increase votes for his reelection, even if it raises no more tax revenues for the government.
Thomas Sowell is a senior fellow at the Hoover Institution.
Yeah, well, good luck getting anything that runs counter to the leftist/liberal agenda printed in any of today's "popular publications". That's the problem in a nutshell.
Tax policy is secondary to the existential threat to the Republic that spending represents. No one should be talking about tax cuts when we are running $trillion and a half deficits and financing it by printing dollars.
On the contrary, one should always be talking about tax cuts.
Of course one should also be championing huge spending cuts, but not at the expense of talking tax cuts, as well.
Did you even read the article and the success Andrew Mellon had making the case for dropping rates from 73% to 24%?
Historians don't look back and call that era "The Roaring '20's" for nothing.
Its no longer about “taxes” ...its about control...
We need to start thinking of spending as tax.
Bush’s tax cuts were a cynical illusion.
Bush's tax cuts were the best he could muster with a 50/50 power share with Tom Daschle when Jim Jeffords flipped to Independent in May, 2001. That is why they had a sunset provision at all to start with once the post-9/11 tax rate reduction stimulus was voted in.
(R)'s didn't make them permanent (utter fail), and since 2007 (D)'s have done all in their power to undo them, and only in despiration trying to avoid an election year triple-dip recession did they vote their 1-yr extension once faced with an (R) house and the looming 2012 election.
The burden we will endure for the debt incurred due to the increased rates of spending during his term will be many times whatever we saved with his tax cuts.
Cutting taxes while increasing spending is both insane and cowardly.