Trickle Down and Tax Cuts

By Walter E. Williams

Dr. Thomas Sowell’s “‘Trickle Down Theory’ and ‘Tax Cuts for the Rich'” has just been published by the Hoover Institution. Having read this short paper, the conclusion you must reach is that the term “trickle down theory” is simply a tool of charlatans and political hustlers.

Sowell states that “no such theory has been found in even the most voluminous and learned histories of economic theories.” That’s from a scholar who has published extensively in the history of economic thought. Several years ago, Sowell, in his syndicated column, challenged anyone to name an economist from any economic school of thought who had actually advocated a “trickle down” theory. To date, no one has quoted any economist who ever advocated such a theory. Trickle down is a nonexistent theory. Those who use it simply argue against a caricature rather than confront an argument actually made.

President Barack Obama recently criticized Mitt Romney and Paul Ryan for trying to sell a tax plan, which he called “trickledown snake oil.” Criticizing tax cuts as trickle down is a way not to confront the argument; however, there’s empirical evidence about the effects of tax cuts. Sowell shows that during the Warren Harding administration, in 1921, Secretary of the Treasury Andrew Mellon advocated tax rate cuts, which were enacted into law by Congress. Afterward, there was rising output; unemployment plummeted; and the resulting higher income produced greater federal tax revenues, even though the tax rate had been lowered (see: The Great Depression). There were somewhat similar results in later years after high tax rates were cut during the John F. Kennedy, Ronald Reagan and George W. Bush administrations.

The facts about the 1920s tax rate cuts are unmistakably clear for those who bother to check the facts. In 1921, when the tax rate on people earning more than $100,000 a year was 73 percent, the federal government collected a little more than $700 million in income taxes, of which 30 percent was paid by those earning more than $100,000. By 1929, after the tax rate had been cut to 24 percent on incomes higher than $100,000, the federal government collected more than $1 billion in income taxes, of which 65 percent was collected from those with incomes higher than $100,000.

In 1962, Democratic President John F. Kennedy pointed out that “it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.” Both Presidents Ronald Reagan and George W. Bush made similar arguments, and the tax rate cuts had the effect of stimulating economic growth while increasing federal tax revenue and shifting a greater percentage of the tax burden on to wealthier individuals.

One very insightful part of Sowell’s paper is the discussion about what Mellon called the “gesture of taxing the rich” — namely, tax-exempt securities that he tried unsuccessfully to put an end to. Tax-exempt securities and other tax breaks are valuable tools in the politics of class warfare and envy. Politicians have it both ways. They get votes by raising taxes on the wealthy — or threatening to do so — and at the same time provide the wealthy with a way out of high taxes through tax-exempt securities. This explains how President Obama can raise tens of millions of dollars in campaign contributions from Hollywood millionaires and Wall Street’s rich and powerful. “Tax cuts for the rich” demagoguery is simply the height of deceit perpetrated on gullible people and useful idiots.

You can bet that the White House has people reading every bit of the news, including this column and Dr. Sowell’s article. You can bet some people in the news media will read it, as well. Despite the facts that Sowell has marshaled, they will continue to use trickle down theory and “tax cuts for the rich” demagoguery, even though they now have hard evidence to the contrary, because they can count on widespread gullibility and inability to do critical thinking.

The Great Depression

By: The Common Constitutionalist

(re-release)

Have you ever noticed we’ve had but one economic Depression in our history? Only one, even with all the economic downturns, all the wars, etc. At least only one we’ve all heard of. It was, of course, “The Great Depression”. It was terrible and lasted so long; from 1929 through the early 1940’s.

I’m sure we’ve heard how that great president Franklin Roosevelt (he was a bad dude) saved us by developing all those wonderful programs and spending all that money (we call it stimulus today). As far as most people know it was the only depression this country has experienced.

Surprise! There was another, but because progressives write the history books, I’m sure you haven’t heard of it. It was the depression of 1920 & things were looking pretty bad.

Oh, by the way, another great progressive president, Woodrow Wilson (evil), presided over the run-up to this one. Two progressive Presidents; two Great Depressions. Funny how that happens and will continue to happen unless we learn from our own history, but I digress.

In 1920 the unemployment rate skyrocketed to 20 percent. GNP (gross national product) had declined by 17%. Not good indeed.

Keep in mind, there was no welfare, Medicare, Medicaid, foodstamps, Social Security, no government assistance programs to speak of. They were a heartless people, back then.

So what did they do, you ask?

Surely, like today, the government must have instituted a massive stimulus program with lots of “ Shovel-Ready” jobs. They must have started a sweeping welfare program to save the people.

Well, no. Instead, the Warren G. Harding administration cut the government budget almost in half within 2 years. Could you imagine even proposing anything remotely like that today? The liberals would hemorrhage.

Anyway, back to history.

Taxes were cut for everyone. The Federal Reserve, without the sage guidance of Ben Bernanke, did almost nothing. It must have been awful.

It was for about a year. What did America do? It fixed itself.

Americans did what Americans do. They took their medicine, endured the pain and by August of 1921 the unemployment rate dropped from 20% to 6.7%. That’s only a year and a half people.

Harding died suddenly and his vice president, The great Calvin Coolidge continued the programs & by the end of 1923 the unemployment rate was down to 2.4%. Dare to dream about 2.4% unemployment. That’s what made the roaring 20’s roar!  Not government programs or intervention. Companies were allowed to fail and new ones took there place. Capitalism could thrive in such an environment, and did.

See, Lower Everyones Rate & the Rich DO Pay More

All the lessons are right here for us to learn from. Everything has been tried before. There’s nothing new. History show’s what has worked & what has not. It can’t be spun. Believe me, there will be pain coming, one way or another. We will have to decide whether it will be a quick rip of the bandage (Warren Harding, Calvin Coolidge) with it’s accompanying shooting but short-lived pain or the long slow pull (Franklin Roosevelt, Barack Obama) with it’s constant drawn out anguish. I’m praying for the former, but I fear the latter.