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Wednesday, May 23, 2012

Defending Tax Cuts for the ‘Rich’

Thomas Sowell
Republicans should revisit the arguments of the 1920s.

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 People’s Business.” That book has recently been reprinted by the University of Minnesota Law Library. Today’s Republicans would do well to get a copy of Mellon’s 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.

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