Thomas Sowell on “tax cuts for the rich”:
Between 1921 and 1929, tax rates in the top brackets were cut from 73 percent to 24 percent. In other words, these were what the left likes to call “tax cuts for the rich.”
What happened to federal revenues from income taxes over this same span of time? Income tax revenues rose by more than 30 percent. What happened to the economy? Jobs increased, output rose, the unemployment rate fell and incomes rose. Because economic activity increased, the government received more income tax revenues. In short, these were tax cuts for the economy, even if the left likes to call them “tax cuts for the rich.”
This was not the only time that things like this happened, nor was Andrew Mellon the only one who advocated tax rate cuts in order to increase tax revenues. John Maynard Keynes pointed out in 1933 that lowering the tax rates can increase tax revenues, if the tax rates are so high as to discourage economic activity.
President John F. Kennedy made the same argument in the 1960s — and tax revenues increased after the tax rates were cut during his administration. The same thing happened under Ronald Reagan during the 1980s. And it happened again under George W. Bush, whose tax rate cuts are scheduled to expire next January.
The rich actually paid more total taxes, and a higher percentage of all taxes, after the Bush tax rate cuts, because their incomes were rising with the rising economy.
Do the people who keep repeating the catch phrase, “tax cuts for the rich” not know this? Or are they depending on your not knowing it?
Well, here’s the thing: Rob Reiner told me that people like Sowell — who preach small government and tax cutting and a pull-back on federal spending — are not only jaw-droppingly stupid, but they are terribly hateful, as well. Sowell’s decision to harken to the 20s and 30s for instance, when contextualized this way, can be seen for what it is: an appeal to the angry populism of Adolph Hitler that is now clearly evincing itself in the fear-mongering of the Tea Party, whose members bitch about things like $13 trillion dollar+ debts, and 22% real unemployment rates in places like California, without ever once stopping to praise the lowering of the oceans, or how much “social justice” has been doled out to the politically connected needy since the progressive agenda gained its wildly popular mandate.
Were people like Rob Reiner not so non-hateful and smart and enlightened, they’d probably wish conservatives like Sowell and his kin die of AIDS or something.
But they are, so they won’t. God bless ’em.
Goddamn economic stuff — numbers, ordinary human behavior and such — the Reiner’s and Maher’s of the world would have to work to remember, whereas self-preening envy-loving-hatreds they carry right along with ’em in their bones, despite being made filthy rich (or maybe because being made more like) in their own right by selling horseshit to willing buyers.
Anyone who starts an argument with the authority that “Rob Reiner told me…” is a meathead.
Unless of course it is to mock what Reiner is saying.
BTW–North sucked.
So why did NPR keep Totenberg and fire Williams? Racism of course!
High tax rates are not loved by the political class who put them in place for their ability to raise revenue, that’s just the sales pitch. They are loved for their ability to give more power and control over the private sector to the political class.
As it pertains to this post, here’s one of the best “Taxation for Dummies” things I’ve ever read. And, given the audience around here, I think the baseline standard for the explanation might appeal. Apologies for the length. There was no way for me to link.
THE TAX SYSTEM EXPLAINED IN BEER
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100…
If they paid their bill the way we pay our taxes, it would go something like this…
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7..
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do..
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20”. Drinks for the ten men would now cost just $80.
The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share?
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.
And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.
“I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”
“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”
The nine men surrounded the tenth and proceeded to beat the shit out of him.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible
we have a ‘sally struthers’ government
it just keeps getting bigger,and bigger
POP goes the ballon!
balloon/sorry/spelling is not my thing
That Rob Reiner vid is a case of pure projection … and the pull quote under it where he says “Imagine 5 years ago people running around with pictures of Hitler”… The anti-Iraq war Lefty protesters (ANSWER, et al) were running around with pictures of Bush=Hitler you boob!
Reiner should just shutup and direct.
Lamont
I first heard the parable of the tenth man via WF Buckley.
It’s honestly unbelievable that someone has been able to achieve such success in life an still be so profoundly stupid. I think it suggests another aspect to the opinions of the “elite” – which Meathead certainly belongs to by virtue of his wealth and the circles it allows him to travel in.
It is that they absolutely NEVER have their world view challenged in any meaningful way. Perhaps people are blinded by his wealth, or he surrounds hisself with sycophants, are perhaps he’s a first-class asshole who simply yells down the other in debate.
But his understanding of conservatives or Tea Partiers or “classical liberals” is on par with that of a 14 y/o. It’s like he’s stunted.
South Park did the ultimate takedown on Reiner, painting him like Jabba the Hutt
http://www.southparkstudios.com/clips/154265/welcome-rob-reiner
Also, Lamont, the beer parable explains the Bush tax cuts. What Obama wants, and the Dems were afraid to try to give him before the election is to go back to when the tenth man paid $59 instead of $49 (probably the 7th 8th and 9th men back to their earlier share of the bill as well, but I don’t know where the $100k income break falls in this analogy).
The bar owner is borrowing something like 30% of the cost of the keg, and he thinks he can cover it by collecting an extra $10 bucks.
And now I’m breaking down the analogy, because it’s designed to explain taxpayer’s behavior, not tax spender’s.
Also, I know the above comment can easily be “guffawed”.
No fucking way 10 men drinking beer in a bar wind up with a tab only of only a $100 dollars.
That is patently absurd.
Gonna go with him just using simple round numbers to make a point.
Every time the Left says “tax cuts” we should stop them and say “No, it’s tax rate cuts.” Then when they roll their eyes and act like we’re splitting hairs, we tell them that a few weeks after the election, we’ll have our annual demonstration of what happens when someone cuts the rate but increase their revenues.
Across the country, stores will cut the price per unit they charge for goods, and most will make their largest profit for any single day of the year.
Cutting tax rates is putting taxes on sale. It is really that simple; everybody understands how that works.
Naw, that was his TV wife Sally Struthers.
I’m cutting marginal tax rates to the bone… and beyond!
I must be insaaaaaane!
south park rocks!
I first heard the parable of the tenth man via WF Buckley.
Talk about “sorely missed.”
Damn. And Buckley’s acorn fell far from the tree…like in the neighbor’s yard…two counties over.
The bar owner is borrowing something like 30% of the cost of the keg…
Heh. Been a while since college Ernst. I forgot about the deposit for the keg. Basic demand side economics. Get your unique cup for the beer at the door.
$10 dollars please.
And any dude caught drinking out of a non-authorized cup gets beaten and thrown out.
Hot chicks get a pass.
Man. Hot chicks and the free market.
Don’t get me started.
“No fucking way 10 men drinking beer in a bar wind up with a tab only of only a $100 dollars.
That is patently absurd.”
Apparently you’ve never been in some of the dives I have been :)
Try “The Drift” in Gilberts, IL for fifty or 75 cent drafts on special. Sure, it is the good stuff like Old Style or such, but you could spend some nondescript Tuesday night getting really blasted for not a lot of cash…
The left in this country is so invested keeping the populace dependent that a growing expanding economy holds no interest for them.
Tenth man: “Hey! I’ve got ten extra dollars; I think I’ll celebrate and invest in some more drinks!”
Tenth man: “Hey! I’ve got ten extra dollars; I think I’ll celebrate and invest in some more drinks!”
You’d think the Dems would figure that out TaiChiWawa, but in their alternate reality, that ten dollar bill always ends up in a coffee can buried in the back yard.
Apparently you’ve never been in some of the dives I have been :)
LTC John,
Please inform me immediately upon any further knowledge you ascertain on these so called “cheap beer dives” you speak of. Especially any that may operate establishments south of the Mason Dixon Line.
If they truly exist down my way, my friends and I wish to patronize all of them. Often.
We like to help out local economies.
We’re “givers” that way.
I just put “The Drift” in Illinois in my iPhone contacts.
Now if I can just figure out where in the hell Gilberts, IL is…
But if we were Nazis, we would get to goose-step down the plaza to military brass bands.
bitchin yo
/sarc
Rob Reiner’s character was ‘Meathead’ and never was so apt a nickname given.
And of course the old standby: If we were as bad as he says he wouldn’t have had the chance to say it.
…that ten dollar bill always ends up in a coffee can buried in the back yard.
Ha! They ain’t burring it. Democrats gonna take in that $10 bucks and spend $500!
I think it’s going the other way Ernst.
I know a rascally gun & God clinging (not to mention a stocked ranch safe house) wealthy small business owner fella tell me last week that the entire estate plan he’s leaving to his daughter now basically consists of a damn “treasure map” telling her where to dig after he’s gone.
And, knowing him, I think the sonofabitch was serious.
Until Obabma’s gone big and small business are gonna keep their money buried in their back yards.
Until Obabma’s gone big and small business are gonna keep their money buried in their back yards.
I suppose our points are mutually reinforcing. If the Democrats wouldn’t insist on taking that extra ten bucks up front, the tenth man wouldn’t have to bury it in the backyard, and then the bar owner would get some of that $10 on the back end when an extra round gets purchased.
Meathead is a meathead. Who knew?
Lamontyoubigdummy, if you are in the DFW area there are some pretty good happy hour specials around here. One of them is in a Thai restaurant in Plano.
Lamont – my, er, “knowledge” is strictly local…. think far western suburbs of Chicago, and into farm country.
Government revenue plunged during the 1920’s, both as a percentage of GDP and total dollars. Sowell is a mendacious ass, and here are the numbers that show he is a liar.
Mr. Simon, government revenue plunged in 1920-21 largely as a result of the end of WWI. If you adjust your linked graph to start in 1921-22 (after the war, and after the rate cut went into effect), and look at individual income taxes (which is what Mr. Sowell is talking about), rather than total federal receipts, the picture changes a great deal.
My thanks for the link to the analysis website, by the way. I think I may have to bookmark that one.
Squid, Here is the chart showing income tax receipts from 1921 to 1929, just as Sowell cited. Where is the 30% increase? There is a decrease over those years from 3.4 to 2.3 billion.
“Between” may very well imply the years ’22 – ’28, disinclusive of ’21 and ’29, which, if we look at that chart, fits Sowell’s description fairly well.
What else happened during those years? The population of the United States grew by over 10%. Sowell is mendacious. The cut in tax rates reduced government revenue during the 1920’s in all manner… total dollars, % of GDP, and relative to growth of population.
You seem to enjoy repeating the phrase “Sowell is mendacious” without any evidence. Infants newly born, while counting in a census, aren’t notable contributors to productive economies. So I’m going to conclude you have an ax to grind otherwise outside our ken.
OK 3 times now I have written an explanation, with links, and either each time the fucking spam filter has eaten it or I have lost my commenting privileges…
Essentially what happened was the top tax rate incrementally decreased between 1921 snd 1925, until it reached 25 percent. If you focus on the years 1925 to 1930, you’ll see that income tax revenue goes from 1.7 to 2.3 billion; which any calculator will tell you right around a 30 percent increase.
Sorry I couldn’t get in sooner, but it takes a while to retype the same comment 3 times!
And if you consider total revenue instead, the rate of increase is approximately 20 percent; from 4 to 4.8 billion.
Bob, I’ve found that after a WordPress refusal to publish, hitting the “back” button will recover the comment entry entire, which one can then modify at will (say, change an included link to a tinyurl for instance, or removing a couple of html commands) until the damned thing will publish. Pain in the ass, sure, but it saves a heap of work otherwise.
Sowell: “Between 1921 and 1929, tax rates in the top brackets were cut from 73 percent to 24 percent. In other words, these were what the left likes to call “tax cuts for the rich.”
What happened to federal revenues from income taxes over this same span of time? Income tax revenues rose by more than 30 percent.”
He is wrong. Revenues from income taxes over that period of time fell from 3.4 billion to 2.3 billion.
tinyurl hasn’t been doing the trick for me lately
bitly neither
Again, one has to go out of one’s way to read Sowell uncharitably, as though he cannot read a chart just as well as you or I, in order to maintain the stance you’ve chosen. I don’t think Sowell is chart reading impaired, nor do I see any evidence he intends to lie, nor that he is too simple to understand the point he intends to make. So, what is your deal?
Boudreaux on Ecomomics’ Limits.
Now who’s being mendacious fsimon? Take a look in the mirror…
As I noted the rates declined between 1921 and 1925, staying right around, or above, 50 percent until finally in 1925 they decreased to 25. Income tax revenues then increased roughly 30 percent following the rates finally achieveing the 25 percent metric.
It’s a phenomena that’s occurred several times in the last 100 years. So unless you’re trying to make an argument in agreement with Obama’s, that is an ineffectual one, that raising tax rates on the rich because of the fairness will generate mad piles of revenue, I don’t know what your goal is, besides badmouthing Sowell.
Might be some of the unconscious racism shining through; I’d seek counseling, or absolution provided by your nearest community organizer…
Indeed, the very chart you keep bitterly clinging to puts the lie to your supposition. US income tax revenue fell precipitously following WWI, not to increase again until after the top rates were reduced to a reasonable level.
You know, because of the fairness…
Oh sdferr,
I saw your suggestion and will use it in the future. It’s just that in the comment I thanked you for the info I also tried to include the link to the source of the top tax rate data.
The filter choked on the tiny-ized url anyway.
A tyrannical government could confiscate the entirety of a nation’s production, boosting revenues to that tyranny quite a lot, no doubt. The question left unanswered in such a case is, what will happen to the economy of that nation thereafter? Could be it will substantially diminish, couldn’t it? Is the death of an economy the object? That doesn’t seem right somehow.
IIRC fsimon is one of meya’s aliases; one not trotted out here in a while.
The elephant in the room is as I said in #4. The amount of revenue raised by any tax is not the metric that matters to those on the left. It is the power over the private sector that matters.
The taxes imposed and the rates at which they are set are designed to obtain the most power that can be taken over the private sector while still getting reelected to office.
Even the reelection of certain members can be forgone if the power increase is tempting enough and the survival of the Party as a whole seems secure. The Party leadership knows/believes it will be back in control at some future point.
There are a number from the mid-summer using the handle f. simon.
This one is precious.
Yep same character geoffb. Or, should I say, lack of character.
The politician is auctioning his services to the voters, bidding against competitor politicians. Voters should find their interest in bargaining to a politician who will do better work more efficiently for less cost. Plain old “less doing” might be a good start, as it happens. So, for voters (sovereigns) to place better limits to the doings of government seems an obvious beginning. Fix the question “What does better mean?” (in both senses of “fix”) and we’ve gone a long way to fixing current problems of governance.