The Leftist rallying cry ‘tax cuts for the rich’ is predicated upon intentional distortions. In search of votes, Democrats passionately decry the moral injustice of ‘rich’ people being permitted to keep and accumulate the fruits of their labor. If only taxes were higher, the Left contends, the government would have the necessary funds and power to impose equality on ‘the masses.’
The moral argument for lower taxes is quite simple: people are entitled to retain their private property. Taxes should be used to fund the defined roles of government and nothing else. Social engineering and wealth redistribution to favored constituencies are not what taxes are supposed to be used for.
The economic argument has been proven throughout the course of history. To a point, lower tax rates result in larger revenues for the federal government. Thomas Sowell recently wrote a great article on this topic:
…High tax rates do not necessarily result in high tax revenues to the government. “It is time to face the facts,” he said. Merely having high tax rates on large incomes will not bring in more tax revenues to the treasury, because of “the flight of capital away from taxable investments.”
This was all said in 1924, in Mellon’s book, “Taxation: The People’s Business.” Yet here we are, more than 80 years later, still not facing those facts.
It is not just a question of what Andrew Mellon said. It is a question of hard facts, easily checked in official documents available to all– and ignored all these years.
Internal Revenue Service data show that there were 206 people who reported annual incomes of one million dollars or more in 1916. But, as the tax rate on high incomes skyrocketed under the Woodrow Wilson administration, that number plummeted to just 21 people reporting a million dollars a year in income five years later…
Right after Congress enacted the cuts in tax rates that Mellon had been urging, there were suddenly 207 people reporting taxable incomes of a million dollars or more in 1925. As Casey Stengel used to say, “You could look it up.” It is on page 21 of an Internal Revenue publication titled “Statistics of Income from Returns of Net Income for 1925.”
Where had all the income of those millionaires been hiding? In tax-exempt securities like state and local bonds, among other places. Mellon had urged Congress to end tax exemptions for such securities, even before he got them to cut tax rates. But he succeeded only with the latter, and only after a political struggle with those who made the same kinds of arguments that are still being made today by those who cry out against “tax cuts for the rich.”
…The government, which collected less than $50 million in taxes on capital gains in 1924, suddenly collected well over $100 million in capital gains taxes in 1925. At lower tax rates, it no longer made sense to keep so much invested in tax-exempt securities, when more money could be made by investing in the economy.
As for “the rich”– who really were rich in those days, when $100,000 was worth more than a million dollars is worth today– those in the highest income brackets paid 30 percent of all taxes in 1920 and 65 percent of all taxes by 1929, after “tax cuts for the rich.”
How can that be? Because high tax rates on paper, that many people avoid, often does not bring in as much tax revenue as lower tax rates that more people actually pay, after it is safe to come out of tax shelters and earn higher rates of taxable income.
The investors do this because it makes them better off, on net balance, even after they pay more money in taxes on incomes that have gone up. More important, the economy benefits when there is more investment in things that create more jobs and rising output…
As John Adams said, “facts are stubborn things.” In this case, the facts support lower taxes.
Since 2000, Democrats have railed against the ‘Bush tax cuts for the rich.’ Now Democrats claim that the extension of the Bush tax rates, by a Democrat controlled Congress, and a Democrat president, is a great victory for Obama and his party.
Preventing one of the largest tax rate hikes in history is a victory for the American people and conservative ideas. In no way can an acquiescence by the Left of this magnitude truly be seen as a victory for the Left.
However, reality never seems to get in the way of the political class. In all likelihood, by 2012 President Obama will be touting the success of the ‘Obama tax cuts.’ In 1996 Bill Clinton won reelection by running on all the successes of the Contract with America – the very same document Clinton had called the “Contract on America,” likening conservative ideas to a hit man’s contract. Just like Clinton, Obama will try to claim responsibility for the successes of Republican ideas, which he will fight bitterly against.
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