Thursday - July 21, 2011

Tax Cuts For The Rich

Thomas Sowell writes a 7 page, 3 part essay on tax policy and makes his argument using actual facts and actual history. Amazing.

And what a non-surprise: the willfully blind left has been refusing to see reality on this for NINETY YEARS, because it goes against their Marxist, Collectivist beliefs. America, the land of opportunity? In their minds it is not an opportunity for you to get rich, but and opportunity for them to spread your wealth around.

Don’t follow the links if you aren’t bright enough to understand a bit of economics. The idea that cutting taxes on the people best able to invest in the economy leads those people to actually invest in the economy is difficult for some to grasp. Instead they absolutely cling to the erroneous slogan of “trickle down economics” and mouth the empty platitudes the media provides them. The reality is that real wealth creation is a bottom up endeavor: you can’t sell a product and make a profit until a whole slew of people have designed it, built it, shipped it, marketed it, mined or grown the raw materials for it and so on. And they all get paid, even if your product doesn’t sell. Selling that product for a decent profit makes money for the investor, but it also keeps everyone in the creation process employed. So before there is a “trickle down” there is a “gush up”; maybe “fountain economics” is a better term to describe the wealth creation cycle. But just like understanding that the carbon cycle is an actual cycle, alarmists with a pinko agenda will only see the one arc of the cycle and scream about it, because they only want to see that one side.

Oh, and to add even more to your non-amazement, “scholars” who are not economic realists have been pushing the leftist deliberate misunderstanding as fact in textbooks for decades. No surprise there, because that’s the same message that the MSM has been pushing for nearly a century.

Sowell puts things very clearly. It’s a good 15 minute read for the whole thing. Part 1.  Part 2.  Part 3.

“Just as labor cannot be forced to work against its will, so it can be taken for granted that capital will not work unless the return is worthwhile. It will continue to retire into the shelter of tax-exempt bonds, which offer both security and immunity from the tax collector.”

The facts are unmistakably plain, for those who bother to check the facts. In 1921, when the tax rate on people making over $100,000 a year was 73%, the federal government collected a little over $700 million in income taxes, of which 30% was paid by those making over $100,000.

Revenue spiked as tax rates were slashed.

By 1929, after a series of tax-rate reductions had cut the tax rate to 24% on those making over $100,000, the federal government collected more than a billion dollars in income taxes, of which 65% was collected from those making over $100,000.

Empirical evidence on what happened to the economy in the wake of those tax cuts in four different administrations over a span of more than 80 years has also been largely ignored by those opposed to what they call “tax cuts for the rich.”
...
The very idea that profits “trickle down” to workers depicts the economic sequence of events in the opposite order from that in the real world. Workers must first be hired and paid before there is any output produced to sell for a profit, and independently of whether that output subsequently sells for a profit or at a loss.

With investments, whether they lead to a profit or a loss can often be determined only years later, and workers have to be paid in the meantime, rather than waiting for profits to “trickle down” to them.

The real effect of tax-rate reductions is to make the future prospects of profit look more favorable, leading to more current investments that generate more current economic activity and more jobs.

Implicit in the approach of both academic and media critics of what they call “tax cuts for the rich” and a “trickle-down theory” is a zero-sum conception of the economy, where the benefits of some come at the expense of others.
...
Even when empirical evidence substantiates the arguments made for cuts in tax rates, such facts are not treated as evidence relevant to testing a disputed hypothesis, but as isolated curiosities. Thus, when tax revenues rose in the wake of the tax-rate cuts made during the George W. Bush administration, the New York Times reported:

“An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year.”

The economy is not a zero-sum game. It grows and shrinks. When it grows, there is more money in it for everyone.

Understanding marginal tax rates is key. If you severely tax the people who already have the quantities of money needed to make significant investment in the economy, they will put their money in places where it can’t be taxed,even though it will earn them less overall. But if you tax those same people at a lesser rate, then they will invest their money in taxable ventures (ie business and jobs) that will earn them much more. The bottom line will be increased revenue for the government. This has been seen 4 times already by previous administrations: FDR, JFK, Reagan, and Bush, yet our Idiot In Chief still stands behind his teleprompter and wails on about “tax cuts for the rich”.

An investor has $10. She has 3 ways to invest it. One way earns her $20 and is no work at all, one way earns her $100 and is a little work, one way earns her $10,000 but is very hard. You are the government, so choose your tax plan wisely.

Tax plan 1:
A 0% tax rate on $20 gets you nothing. A 90% tax on $100 gets you $90. A 20% tax on $10,000 gets you $2000. Which is more: nothing, $90 or $2000? You know the answer.

Tax plan 2:
A 0% tax on $20 gets you nothing. A 10% tax on $100 gets you $10. A 99.5% tax on $10,000 gets you $9950. Which investment will the investor choose? You know the answer, but the media doesn’t.

It really is as simple as that, and Sowell shows that history has seen the truth time after time after time.

Posted by Drew458     on 07/21/2011 at 08:22 AM   
Filed Under: • Economics •  
• Comments (3) • Trackbacks(0)  Permalink •  

DISCLAIMER

THE SERVICES AND MATERIALS ON THIS WEBSITE ARE PROVIDED "AS IS" AND THE HOSTS OF THIS SITE EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, TO THE EXTENT PERMITTED BY LAW INCLUDING BUT NOT LIMITED TO WARRANTIES OF SATISFACTORY QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICE OR ANY MATERIALS.

Not that very many people ever read this far down, but this blog was the creation of Allan Kelly and his friend Vilmar. Vilmar moved on to his own blog some time ago, and Allan ran this place alone until his sudden and unexpected death partway through 2006. We all miss him. A lot. Even though he is gone this site will always still be more than a little bit his. We who are left to carry on the BMEWS tradition owe him a great debt of gratitude, and we hope to be able to pay that back by following his last advice to us all:

1. Keep a firm grasp of Right and Wrong
2. Stay involved with government on every level and don't let those bastards get away with a thing
3. Use every legal means to defend yourself in the event of real internal trouble, and, most importantly:
4. Keep talking to each other, whether here or elsewhere

It's been a long strange trip without you Skipper, but thanks for pointing us in the right direction and giving us a swift kick in the behind to get us going. Keep lookin' down on us, will ya? Thanks.

THE INFORMATION AND OTHER CONTENTS OF THIS WEBSITE ARE DESIGNED TO COMPLY WITH THE LAWS OF THE UNITED STATES OF AMERICA. THIS WEBSITE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA AND ALL PARTIES IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE AMERICAN COURTS. IF ANYTHING ON THIS WEBSITE IS CONSTRUED AS BEING CONTRARY TO THE LAWS APPLICABLE IN ANY OTHER COUNTRY, THEN THIS WEBSITE IS NOT INTENDED TO BE ACCESSED BY PERSONS FROM THAT COUNTRY AND ANY PERSONS WHO ARE SUBJECT TO SUCH LAWS SHALL NOT BE ENTITLED TO USE OUR SERVICES UNLESS THEY CAN SATISFY US THAT SUCH USE WOULD BE LAWFUL.

Copyright © 2004-2015 Domain Owner