Thomas Sowell on Tax Cuts

One of the most contentious topics in recent American politics has been tax policy. Republicans have advocated tax cuts to relieve the tax burden on Americans and, in doing so, (hopefully) improve the economy. In contrast, Democrats have advocated tax rate increases on the “rich” (who are mistakenly considered to be high income earners regardless of wealth) in the hope that tax revenues can be increased so that the federal government can be more generous with its welfare and entitlement programs. Republicans argue that increased tax rates will increase the tax burden on Americans, which will ultimately hurt both the economy and tax revenues. Democrats have made some serious arguments against Republican plans for tax cuts, but more often than not have attacked those plans as “tax cuts for the rich”, “trickle-down theory”, etc.

Economist Dr. Thomas Sowell has written a superb and informative article addressing these leftist attacks on “trickle-down theory” and the like. The article — which everyone should read — explains that leftists are attacking straw men when they make such arguments since no one has ever actually advocated a “trickle-down theory” or anything like it. As Dr. Sowell explains this fallacious thinking:

What is…inconsistent [about such arguments] is attributing [leftists’] own assumptions to those who are arguing on the basis of entirely different assumptions. Challenging those other assumptions, or the conclusions which derive from them, on either analytical or empirical grounds would be legitimate, but simply attributing to them arguments that they never made is not.

Dr. Sowell demonstrates that not only has no conservative or Republican has ever argued for a “trickle-down theory” or the like, but that Democrats like Woodrow Wilson and John F. Kennedy and even economists like John Maynard Keynes have argued for tax rate cuts in order to improve the economy and increase tax revenues.

Avoiding the leftist assumptions and inflammatory word choices, Dr. Sowell offers the following succinct explanation of the actual theory (emphasis his):

[H]igh tax rates that many people avoid paying do not necessarily bring in as much revenue to the government as lower tax rates that more people are in fact paying, when these lower tax rates make it safe to invest their money where they can get a higher rate of return in the economy than they get from tax-exempt securities.

In other words, lower tax rates encourage people — poor, rich, low income, high income, etc. — to invest their money in the economy rather than in tax-exempt securities, which results in an improved economy and increased tax revenues. Tax revenues increase despite lower tax rates since there is more taxable income overall.

Finally, it’s worth noting — as Dr. Sowell points out in his article — that tax cuts have resulted in increased tax revenues as recently as George W. Bush’s presidency. As much as the left hates the Bush tax cuts, even the New York Times admitted that a

steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.

This is a telling admission since the New York Times is hardly a friendly source for conservatives and Republicans — betraying its already obvious leftist bias, the Times called this increase in tax revenues “surprising” and “unexpected” despite the fact that such an increase in tax revenues was and is entirely expected by conservatives. It’s also noteworthy that the increased tax revenues came mostly from corporations and the wealthy, which are precisely the groups the left keeps telling us they want to “ask to pay a little bit more”.

Dr. Sowell’s article explains all this and more (in layman’s terms, as he is known for) so be sure to read the entire article.

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