Thomas Sowell - the ultimate argument against "tax the rich," class warfare demagoguery?
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May 17, 2011
Slaves to Words
By Thomas Sowell
5/17/2011
We could definitely use another Abraham Lincoln to
emancipate us all from being slaves to words. In the midst of a historic
financial crisis of unprecedented government spending, and a national
debt that outstrips even the debt accumulated by the reckless government
spending of previous administration, we are still enthralled by words
and ignoring realities.
President Barack Obama's constant talk
about "millionaires and billionaires" needing to pay higher taxes would
be a bad joke, if the consequences were not so serious. Even if the
income tax rate were raised to 100 percent on millionaires and
billionaires, it would still not cover the trillions of dollars the
government is spending.
More fundamentally, tax rates-- whatever
they are-- are just words on paper. Only the hard cash that comes in can
cover government spending. History has shown repeatedly, under
administrations of both political parties, that there is no automatic
correlation between tax rates and tax revenues.
When the tax rate
on the highest incomes was 73 percent in 1921, that brought in less tax
revenue than after the tax rate was cut to 24 percent in 1925. Why?
Because high tax rates that people don't actually pay do not bring in as
much hard cash as lower tax rates that they do pay. That's not rocket
science.
Then and now, people with the highest incomes have had
the greatest flexibility as to where they will put their money. Buying
tax-exempt bonds is just one of the many ways that "millionaires and
billionaires" avoid paying hard cash to the government, no matter how
high the tax rates go.
Most working people don't have the same options. Their taxes have been taken out of their paychecks before they get them.
Even
more so today than in the 1920s, billions of dollars can be sent
overseas electronically, almost instantaneously, to be invested in other
countries-- creating jobs there, while millions of American are
unemployed. That is a very high price to pay for class warfare rhetoric
about taxing "millionaires and billionaires."
Make no mistake
about it, that kind of rhetoric wins votes for political demagogues--
and votes are their bottom line. But that is totally different from
saying that it will bring in more tax revenue to the government.
Time
and again, at both state and federal levels, in the country and in
other countries, tax rates and tax revenue have moved in opposite
directions many times. After Maryland raised its tax rates on people
making a million dollars a year, there were fewer such people living in
Maryland-- and less tax revenue was collected from them.
In 2009,
many people specializing in high finance in Britain relocated to
Switzerland after the British government announced plans to take 51
percent of high incomes in taxes.
Conversely, reductions in tax
rates can lead to more tax revenue being collected. After the capital
gains tax rate was cut in the United States in 1997, the government
collected nearly twice as much revenue from capital gains taxes in the
next four years as in the previous four years.
[When this fact was pointed out to Barack Obama by Charles Gibson during an interview, Obama said he would still favor raising the capital gains tax rate "for purposes of fairness!"]
Similar things have happened in India and in Iceland.
There
is no automatic correlation between the direction in which tax rates
move and the direction in which tax revenues move. Nor is this a new
discovery.
Back in the 1920s, Secretary of the Treasury Andrew
Mellon pointed out that people with high incomes were simply not paying
the high tax rates that existed on paper, because they were putting
their money into tax shelters.
After the tax rates were cut, as
Mellon advocated, investments flowed back into the private economy,
producing higher output, rising incomes, more tax revenue and more jobs.
The annual unemployment rate in the next four years never exceeded 4.2
percent, and in one year was as low as 1.8 percent.
Despite
political demagoguery about "tax cuts for the rich," in human terms the
rich have less at stake than working people. Precisely because the rich
have so many ways of avoiding taxes, a high tax rate is likely to do
them far less harm than it does to the economy, on which millions of
people depend for jobs.
Thomas Sowell
Thomas Sowell is a senior fellow at the Hoover Institute and author of The Housing Boom and Bust.
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Top Opinion
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Rodney May 17, 2011 22:11:47Yes, Sowell is the greatest and the "tax the rich" mantra is class warfare de...
+7I was in College when they taught theory without political bias or slants and the very thing Thomas Sowell states here is exactly what I learn way back when. For further evidence of what a even fair tax system can do, look to our old enemy, the former Soviet Union. After they reverted back to Russia they instituted a level tax system where by everyone pays the same percentage across the board on income (13%) and payments increased 26%. They also have a a corporate tax rate of 24% and a dividend tax rate of 6%. They do have other taxes for retirement fund, a VAT tax. But the bottom line is that since simplifying the system and being able to lower the total tax bite they have gotten greater participation from not only the wage earners, but business and corporate, giving them plenty of money to run the government.
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"According to their tax returns, in 2006 and 2007, the Obamas gave 5.8 percent and 6.1 percent of their income to charity. I guess Michelle Obama has to draw the line someplace with all this ‘giving back' stuff. The Bidens gave 0.15 percent and 0.31 percent of the income to charity.
Meanwhile, in 1991, 1992 and 1993, George W. Bush had incomes of $179,591, $212,313 and $610,772. His charitable contributions those years were $28,236, $31,914 and $31,292. During his presidency, Bush gave away more than 10 percent of his income each year.
For purposes of comparison, in 2005, Barack Obama made $1.7 million -- more than twice President Bush's 2005 income of $735,180 -- but they both gave about the same amount to charity.
That same year, the heartless Halliburton employee Vice President Dick Cheney gave 77 percent of his income to charity. The following year, in 2006, Bush gave more to charity than Obama on an income one-third smaller than Obama's."
http://www.americanthinker.co...
They are playing to their base.
You see that same "tax the rich more" mantra spouted by libs on SH all the time.
"When the people find that they can vote themselves money, that will herald the end of the republic."
-- Benjamin Franklin
Actually having an economist explaining the tax rates and tax revenues. Why can't our politicians think of that. There is the Laffer curve that graphs the rates and revenue brought in to the Treasury. At a certain point, higher taxes will actually bring about a decrease in revenue.
Sound contradictory and hypocritical, it is, but it works in the court of public opinion to vilify the 'working rich' while deflecting attention away from the tax liability of the 'politically rich'; who by the way, have to pass bills before they know what is in them (This is analogous to a business putting out a product to see how it works so as to figure out if the product is a good bet in the market place.).
which means the political rich have to work longer actually doing something, so they will have to pass themselves another pay raise and take more all expenses 'paid by the tax payer vacations' to recover from that hard political life of arguing on how to spend other peoples money (and of course reading those bills after they pass them) and getting insider info from the market place and talking to tax lawyers on new and better ways to hide their high earnings from the tax man.
Too many Americans have brought into the Democratic Party line that "The rich need to pay their fair share of taxes".Which has been drilled into their heads.Thanks to that praise being repeated over & over again,in the MSM news.