Liberals Aren't Telling Truth About 'Tax Cuts for the Rich'

The familiar chorus of "tax cuts for the rich" has begun to ring out across the political landscape in the wake of President George W. Bush's proposals to boost the economy. The time is long overdue to expose some of the fallacies folded up inside that phrase.

The dirty little secret is that those defined as "the rich" by liberal politicians include most of the American people in the course of their lifetimes. Even people who were in the bottom 20 percent in income in 1975 were in the top 20 percent at some point during the next two decades.

There is nothing mysterious about the fact that most people start out making beginners' salaries. Then their incomes rise over the years until they reach a peak, usually in their 40s or 50s. Even then, they are not rich by anyone's standard, except that of politicians who want to tax them heavily.

Those who are crying "tax cuts for the rich" never define where "rich" begins. It takes a household income of just $83,500 to be in the top 20 percent. A couple of people making a little over 40 grand apiece are not rich. Even to make the top 5 percent requires a household income of just slightly more than $150,000. Seventy-five grand apiece is a nice income, but you are not going to buy a yacht or a Rolls-Royce with that.

When politicians talk about "the rich" that they want to tax, send not to know for whom the bell tolls. It tolls for thee -- if not now, then at some other point in your life.

Talk about how tax cuts will "give" money to the rich is very misleading. Thinking about the economy solely in terms of money ignores the fact that income and wealth consist of real things -- food and shelter, automobiles and airplanes, factories and farms.

To boost the economy means increasing real production. Boosting the economy requires policies that change people's behavior, causing more people to be hired, more work to be done and more production to result.

The point of cutting taxes on dividends is not -- repeat, not -- to get dividend recipients to spend more money if and when they receive those dividends somewhere down the road. The point is to get them to invest right now, creating jobs right now, so that employment will go up and real output will rise.

Those who think solely in terms of money prefer to extend the period for receiving unemployment benefits. But paying people longer for not working makes no sense if you want more output.

Perhaps the most ridiculous of all the economic fallacies produced by politicians is that "tax cuts for the rich" are supposed to cause money to "trickle down" to those in lower-income brackets. This is a pure straw man.

As someone who spent the first decade of his career researching, teaching and writing about the history of economic ideas, let me assure you that there is no such thing as a "trickle-down" theory. No economist of any school of thought ever has proposed any such thing.

Cuts in tax rates are intended to do what past tax cuts have done before -- under both John F. Kennedy and Ronald Reagan -- namely, cause an increase in real economic activity. In both cases, the government received more tax revenues as a result of rising economic activity than it had received when tax rates were higher.

That is why it is so misleading to express a tax cut in terms of so many billions of dollars. The government can change only tax rates. How much revenue will increase or decrease is something they will find out later.

Tax cuts should be immediate if you want results to be immediate. Stretching out the tax cuts, as initially was done to get political support, gives people incentives to wait before investing. Waiting is not what you want.

The only people whose taxes can be cut are people who are paying taxes. This simple and obvious fact gets overlooked by those who are busy crying "tax cuts for the rich." Tax rates are so skewed that a relatively small percentage of the population pays a huge proportion of the taxes at any given time.

This ensures that any serious tax cut will qualify as "tax cuts for the rich" -- as defined by liberals. How they get away with this phony stuff is one of the mysteries of our time.

Thomas Sowell is a senior fellow at the Hoover Institution at Stanford University in Stanford, Calif., and is syndicated by Creators Syndicate Inc.

Subject: How the US tax system really works; an illustration.

With all the talk about Bush's tax plan - I thought this illustration might help those who still think the wealthy get all the tax
breaks.

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten people go out for dinner. The bill for all ten
comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four people-the poorest-would pay nothing; The fifth would pay $1: The sixth would pay $3; The seventh $7; The
eighth $12; The ninth $18. The tenth person-the richest-would pay $59.

That's what they decided to do. The ten people ate dinner in the restaurant every day and seemed quite happy with the
arrangement-until one day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20." (For those NOT
following, this is called a tax cut.)

So now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes.

So the first four people were unaffected. They would still eat for free. But what about the other six-the paying customers?

How could they divvy up the $20 windfall so that everyone would get his/her "fair share?"

The six people realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth and
sixth persons would end up being *paid* to eat their meal.

So the restaurant owner suggested that it would be fair to reduce each paying person's bill by roughly the same amount
percentage-wise, and he proceeded to work out the amounts each should pay.

And so the fifth person paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving
the tenth person with a bill of $52 instead of his earlier $59.

Each of the six were better off than before. And the first four continued to eat for free.

But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20," declared the sixth
person.

He pointed to the tenth. "But he got $7!"

"Yeah, that's right," exclaimed the fifth person. "I only saved a dollar, too. It's unfair that he got seven times more than me!"

"That's true!" shouted the seventh person.

"Why should he get $7 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four free-loading people in unison, "We didn't get anything at all. The system exploits the poor!"

The nine people surrounded the tenth and beat him to a pulp.

The next night he didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill,
they discovered something important.

They were $52 short!

And that, boys and girls, main stream media journalists, Democrats and liberal college professors, is how the US tax system
works.

You keep screwing with the wealthy and they will take their money elsewhere or Quit the system because it costs too damn
much to play the game.

Then who is going to pay for all those touchy-feely social programs? Too many consumers and not enough producers is the
track this country is on. Bye-bye Miss American Pie!

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.