Dr. Thomas Sowell persists in proving himself a national treasure in this dissection of the leftie talking point of “Tax cuts for the rich.” Excerpt:
One of the painful realities of our times is how long a political lie can survive, even after having been disproved years ago, or even generations ago.
A classic example is the phrase “tax cuts for the rich,” which is loudly proclaimed by opponents, whenever there is a proposal to reduce tax rates. The current proposal to reduce federal tax rates has revived this phrase, which was disproved by facts, as far back as the 1920s — and by now should be called “tax lies for the gullible.”
How is the claim of “tax cuts for the rich” false? Let me count the ways. More important, you can easily check out the facts for yourself with a simple visit to your local public library or, for those more computer-minded, on the Internet.
One of the key arguments of those who oppose what they call “tax cuts for the rich” is that the Reagan administration tax cuts led to huge federal government deficits, contrary to “supply side economics” which said that lower tax rates would lead to higher tax revenues.
This reduces the whole issue to a question about facts — and the hard facts are available in many places, including a local public library or on the Internet.
The hardest of these hard facts is that the revenues collected from federal income taxes during every year of the Reagan administration were higher than the revenues collected from federal income taxes during any year of any previous administration.
How can that be? Because tax RATES and tax REVENUES are two different things. Tax rates and tax revenues can move in either the same direction or in opposite directions, depending on how the economy responds.
Dr. Sowell points out the difference between tax rates and tax revenues, but it’s important as well to point out two things that the political Left wither doesn’t understand or doesn’t admit about tax reform: 1) the economy is not a zero-sum game, and 2) incentives matter. Let’s look at them in turn:
- It’s common enough for folks who don’t understand economics (which, to be honest, is most people) to assume that if one person makes a million bucks, that someone else somehow makes less. That’s the purest of corral litter; Bill Gates, for example, has bade billions from Microsoft; nobody was deprived. In any real economic transaction, the exchange is voluntary and both parties realize a gain in value; everybody wins, nobody loses.
- It’s also common enough for folks who don’t understand economics to fail to understand what the wealthy do with their excess capital. They (with, I suppose, a few rare exceptions) don’t hide it in huge Scrooge McDuckian vaults, and you can only spend so much on houses and yachts. Most capital is invested; it is used to develop new products, to start new businesses and expand existing ones; it goes into the capital markets, and again, everybody gains, especially the millions of people whose retirement funds are invested in those markets.
Dr. Sowell concludes: As a source more congenial to some, a front-page story in the New York Times on July 9, 2006 — during the Bush 43 administration — reported, “An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year.” Expectations, of course, are in the eye of the beholder.
And the economically illiterate expect that you can only make money by taking it from someone involuntarily, and that incentives don’t matter. They’re wrong.
I recommend Dr. Sowell’s book Basic Economics: A Common Sense Guide to the Economy. It’s probably the best guide on basic economics available.