- Paperback: 20 pages
- Publisher: Hoover Institution Press; 1st edition (September 1, 2012)
- Language: English
- ISBN-10: 0817916156
- ISBN-13: 978-0817916152
- Product Dimensions: 6 x 0.1 x 9 inches
- Shipping Weight: 1.6 ounces (View shipping rates and policies)
- Average Customer Review: 4.5 out of 5 stars See all reviews (250 customer reviews)
- Amazon Best Sellers Rank: #30,929 in Books (See Top 100 in Books)
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"Trickle Down Theory" and "Tax Cuts for the Rich" 1st Edition
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About the Author
Thomas Sowell is the Rose and Milton Friedman Senior Fellow on Public Policy at the Hoover Institution, Stanford University. Among his published works are Basic Economics, Late Talking Children, and Race and Culture. He has also published in both academic journals and the popular media including Newsweek, Forbes, the Wall Street Journal, and 150 newspapers that carry his nationally syndicated column.
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Top Customer Reviews
The reason for this is simple: as rates increase, high income individuals shift their income from highly taxed but capital producing investments to lower taxed, non-capital producing investments. It is a lose-lose for everyone. Does not seem difficult, does it? But for many people, it is.
And Sowell is best here, as he often is, when he shifts gears and explains, again with precision, exactly what prevents a large number of people from understanding this difference. Put simply: because the concept is so antithetical to their larger, overarching worldview, their ideological suppositions, that the obvious just confuses them when the obvious is inconsistent with that vision.
Indeed, Sowell provides example after example of proponents of higher tax rates misrepresenting not only ideas (such as the concept of trickle down economics, which Sowell correctly notes is not an actual theory proposed by any supported of easing tax rates to increase revenue) but individuals as well. Andrew Mellon, Secretary of the Treasury in the 1920s, is a particular focal point.
Mellon argued strenuously, over and over, across a wide landscape of taxation, to lower tax rates to increase tax revenues, and specifically and explicitly made such arguments to ease the tax burden of the poorer and middle classes of society. Yet Sowell points to numerous public school textbooks that portray Mellon in the most defamatory light imaginable, stating with confidence that he tried to lower tax rates to help the rich, a group to which he belonged. Not only is this not true, it is literally the exact opposite of what Mellon argued, and the exact opposite of why.
As Sowell points out, it is one thing for tenured eggheads to make patently ignorant statement about history. They are in no danger of being directly affected by the loss of revenue to capital-creating ventures. The story is quite different, however, for those little people that they claim to care about so much. Those little people do pay the price when money goes to friendlier economic climates, an endeavor that gets easier and easier with instant communication and international trade. As is often the case, it is the working men and women who pay the price for the misguided vision of the elite.
Imagine yourself with a lot of money. If taxes are high you are going to look for shelters from the tax. And there are a lot of these! But if taxes are lower, you wouldn't take the effort needed to shelter your taxes as these are not profitable.
This is the crux of the story for the rich: find tax shelters and pay less taxes or if the shelters become to burdensome, pay the taxes!
When taxes are paid, the percent of taxes paid by the rich goes up resulting in more tax revenues for the government. This is empirically proven by looking at tax cuts in the 1920's, the 1960's and the 1980's in the United States.
The theorists and academics focus on a false notion the that the rich are involved in a zero sum game with the poor. What they fail to realize is that amount that rich have put in tax shelters to avoid high taxes takes money out of the economy and results in less opportunities for the poor: the poor will still pay taxes regardless as they do not have access to the tax shelters. So the poor do not benefit from high taxes. With lower taxes, more resources are available to invest in the economy. In this process, the poor gain employment opportunities that would not exist other wise. Thus, their description of "trickle down" is inherently false.
What is also ignored is that the amount of tax revenue collected by the government is higher because the rich are now contributing their taxes.
The book is essentially a long essay but well worth reading and thinking about.
First he points out that the “trickle down” theory is a non-existent theory. No such theory has been found in the history of economic theories, either in name or in essence. "Trickle down" is a mischaracterization of tax reduction policies that misstates both their intent and the normal result of their implementation. One of the first uses of the term “trickle down” was by Franklin D. Roosevelt’s speechwriter Samuel Rosenman, who referred to “the theory that had prevailed in Washington since 1921, that the object of government was to provide prosperity for those who lived and worked at the top of the economic pyramid, in the belief that prosperity would trickle down to the bottom of the heap and benefit all.” Mr. Sowell points out that this was neither the intent nor the result of the income tax reductions of the 1920s. First of all, income tax rates were increased to high levels in the belief that this would help finance World War I. Unfortunately this resulted in investments of the wealthy being directed to tax-exempt municipal bonds and other tax shelters. President Calvin Coolidge and Secretary of the Treasury Andrew Mellon considered this unfair and implemented sharper percentage cuts in tax rates at the lower income levels. They attempted to find the tax rates that would produce the most tax revenues and they succeeded in increasing tax revenues by reducing tax rates.
Secondly, Dr. Sowell points out that efforts to increase income tax revenues through reducing income tax rates, have been successful. Reduced income tax rates in the 1920s resulted in rising output, rising employment, rising incomes and rising tax revenues for the government. There were similar results following the income tax rate reductions implemented during the administrations of John Kennedy, Ronald Reagan, and George W. Bush.
Thirdly, he points out that, even though low income tax rates now seem to be a partisan issue, throughout the twentieth century they were supported by liberal economists, such as John Maynard Keynes, and Democrats, including presidents Woodrow Wilson and John Kennedy. Unfortunately, many people continue to be confused about the difference between reducing tax rates on taxpayers and reducing tax revenues received by the government. Dr. Sowell points out that part of the problem is that several widely used textbooks perpetuate this confusion by misstating the goals and results of twentieth century income tax rate reductions. A lot of this confusion could be eliminated if Dr. Sowell’s essay were required reading instead.
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Kind of worth the 5 bucks